pearson’s 12-member board brings a wide range of...

Pearson plc Annual report and accounts 201146

Pearson’s 12-member board brings a wide range of experience, skills and backgrounds.

Board of directors

Glen Moreno Chairman

aged 68, appointed 1 October 2005

Chairman of the nomination committee

and member of the remuneration

committee

Glen has more than three decades

of experience in business and finance,

and is currently deputy chairman of The

Financial Reporting Council Limited in

the UK, deputy chairman and senior

independent director at Lloyds Banking

Group plc, and non-executive director

of Fidelity International Limited.

Previously, Glen was senior independent

director of Man Group plc and acting

chairman of UK Financial Investments

Limited, the company set up by HM

Treasury to manage the government’s

shareholdings in British banks.

Marjorie Scardino Chief executive

aged 65, appointed 1 January 1997

Member of the nomination committee

Marjorie brings a range of business, legal

and publishing experience to Pearson.

Before becoming Pearson CEO, she was

chief executive of The Economist Group.

Trained as a lawyer, she was a partner in

a Savannah, Georgia, law firm and at the

same time founded with her husband the

Pulitzer Prize-winning Georgia Gazette

newspaper. Marjorie is a director of

Nokia Corporation and on the non-profit

boards of Oxfam and the MacArthur

Foundation. In 2003 she was made a

Dame of the British Empire and in 2010

was named a fellow of the American

Academy of Arts and Sciences.

Will Ethridge Chief executive,

Pearson North American Education

aged 60, appointed 1 May 2008

Will has three decades of experience

in education and educational publishing,

including nearly a decade and a half at

Pearson where he formerly headed

our Higher Education, International

and Professional Publishing business.

Prior to joining Pearson in 1998, Will

was a senior executive at Prentice Hall

and Addison Wesley, and before that

an editor at Little, Brown and Co where

he published in the fields of economics

and politics. Will is a board member and

former chairman of the Association of

American Publishers (AAP) and board

chairman of CourseSmart, a consortium

of electronic textbook publishers.

Chairman Executive directors

Section 4 Governance 47

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Rona Fairhead Chairman and chief

executive of The Financial Times Group

aged 50, appointed 1 June 2002

Rona has wide experience in business,

finance, services and manufacturing.

She was Pearson’s chief financial officer

before beginning her current role in 2006.

In addition to the FT Group, Rona heads

Pearson’s professional and careers

business that includes Pearson VUE

(our electronic testing and certification

business) and various skills and

professional training businesses. She

previously held senior management roles

at specialty chemicals company ICI plc,

and in aerospace with Bombardier/

Shorts. She has an MBA from Harvard

Business School. Rona currently serves as

non-executive director of The Cabinet

Office of UK Government and of HSBC

Holdings plc, where she chairs the risk

committee. She is also a member of

the Cambridge University Library

Visiting Committee. She was made

a Commander of the British Empire

in 2012.

Robin Freestone Chief financial officer

aged 53, appointed 12 June 2006

Robin’s experience in management and

accounting includes a previous role as

group financial controller of Amersham

plc (now part of General Electric) and

senior financial positions with ICI plc,

Zeneca and Henkel UK. He joined

Pearson in 2004 as deputy chief financial

officer and became chief financial officer

in June 2006. Robin qualified as a

chartered accountant with Touche Ross

(now Deloitte), and is currently a non-

executive director and founder

shareholder of eChem Limited. Robin sits

on the Institute of Chartered Accountants

(ICAEW) Financial Reporting Committee

and is deputy chairman of the Hundred

Group of Finance Directors.

John Makinson Chairman and chief

executive of The Penguin Group

aged 57, appointed 15 March 1996

John’s diverse background spans business,

consultancy, financial journalism and

publishing. He was finance director

of Pearson before heading Penguin, and

previously served as managing director

of the Financial Times newspaper, where

he had earlier served as editor of the

popular Lex column. John co-founded

Makinson Cowell, an international

financial consultancy, and was vice

chairman of the US holding company

of advertising firm Saatchi & Saatchi.

John is chairman of the National Theatre

and a trustee of the Institute for Public

Policy Research.


Non-executive directors

Board of directors continued

Susan Fuhrman Non-executive director

aged 67, appointed 27 July 2004

Member of the audit and nomination

committees

Susan’s extensive experience in education

includes her current role as president of

Teachers College at Columbia University,

America’s oldest and largest graduate

school of education. She is president of

the National Academy of Education, and

was previously dean of the Graduate

School of Education at the University

of Pennsylvania and on the board of

trustees of the Carnegie Foundation

for the Advancement of Teaching.

David Arculus Non-executive director

aged 65, appointed 28 February 2006

Chairman of the remuneration

committee and member of the audit

and nomination committees

David has experience in banking,

telecommunications and publishing in a

long career in business. Currently he is

chairman of Aldermore Bank plc, Numis

Corporation plc and the Advisory Board

of the British Library and a non-executive

director of Telefonica S.A. David’s

previous roles include the chairmanship

of O2 plc, Severn Trent plc and IPC

Group, as well as chief operating officer

of United Business Media plc and group

managing director of EMAP plc. David

served from 2002 to 2006 as chairman

of the British government’s Better

Regulation Task Force, which worked

on reducing burdens on business.

Ken Hydon Non-executive director

aged 67, appointed 28 February 2006

Chairman of the audit committee

and member of the remuneration


Ken’s experience in finance and business

includes roles in electronics, consumer

products and healthcare. He is a non-

executive director of Reckitt Benckiser

Group plc, one of the world’s leading

manufacturers and marketers of branded

products in household cleaning and

health and personal care, retailer Tesco

plc and the Royal Berkshire NHS

Foundation Trust. Previously, Ken was

finance director of Vodafone Group plc

and of subsidiaries of Racal Electronics.

Patrick Cescau Senior independent

director aged 63, appointed 1 April 2002

Member of the audit, remuneration


Patrick brings to Pearson more than

35 years global business experience in

finance, consumer products, retailing

and developing and emerging markets.

He is the senior independent director

of Tesco plc, Britain’s largest retailer, a

director of France-based INSEAD, the

Business School for the World, and IAG,

the International Consolidated Airlines

Group, S.A., parent company of British

Airways and Spain’s Iberia. He was

previously group chief executive of

Unilever, the global consumer-goods

company whose brands are known

throughout the world. Patrick is a trustee

of the Leverhulme Trust and chairman of

the St. Jude Children Charity. In 2005 he

was awarded the ‘Légion d’Honneur’, the

highest decoration bestowed by France.

Josh Lewis Non-executive director

aged 49, appointed 1 March 2011

Member of the audit and nomination

committees

Josh’s experience spans finance,

education and the development of digital

enterprises. He is founder of Salmon

River Capital LLC, a New York-based

venture capital firm focused on

technology-enabled businesses in

education, financial services and other

sectors. Over a 25 year private equity/

venture capital career, he has been

involved in a broad range of successful

companies, including several pioneering

enterprises in the education sector.

In addition, he has long been active in

the non-profit education sector, with

associations including New Leaders and

the Bill & Melinda Gates Foundation.

Vivienne Cox Non-executive director

aged 52, appointed 1 January 2012

Member of the audit, remuneration


Vivienne has wide experience in

energy, natural resources and business

innovation. She worked for BP plc

for 28 years, in Britain and continental

Europe, in posts including executive

vice president and chief executive of

BP’s Gas, Power & Renewables business

and its Alternative Energy unit. She is

also non-executive director of mining

company Rio Tinto plc, energy

company BG, the UK Department

for International Development, and

Vallourec, which supplies tubular systems

for the energy industry. Vivienne also sits

on the board of INSEAD.


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Chairman’s letter

Dear shareholders

This year, we are reporting against the revised UK

Corporate Governance Code (the Code).

Role of the board

The Pearson board consists of senior executive

management alongside a strong group of non-executive

directors drawn from successful international

businesses and education institutions with experience

of corporate strategy, education, consumer marketing

and technology.

The board is deeply engaged in developing and measuring

the company’s long-term strategy, performance and

value. We believe that it adds a valuable and diverse

set of external perspectives and that robust, open

debate over significant business issues brings a valuable

additional discipline to major decisions.

We organise our work around four major themes

where we believe the board can add value:

governance, strategy, business performance and

people. Our board calendar and agenda provide

ample time to focus on these themes.

Board composition

We are continually assessing and refreshing the board

to achieve an appropriate balance and diversity of

skills and experience.

We recently added two new non-executive members

to the board. Josh Lewis brings extensive knowledge of

education, technology and the development of digital

businesses; Vivienne Cox adds significant management

experience, an understanding of natural resource

markets, which are key to the development strategies

of many emerging markets, and a deep personal

interest in education and sustainable development.

We continue to search for a non-executive director

who brings additional expertise in emerging markets,

following C K Prahalad’s untimely death in 2010.

We are making good progress in this regard.

In the light of Lord Davies’ report on ‘Women on

Boards’ and the new Code provisions on gender

diversity, we report that Pearson has four female

board members (constituting one-third of the board).

All were appointed for their outstanding records

of achievement in their respective fields, and for

the significant skills and insights that they bring to

our company.

Patrick Cescau, our senior independent director,

has now served on the board for more than nine years.

The board has discussed in detail Patrick’s record and

contribution as a director and considers him to be

vigorously independent. Given his experience as chief

executive of a major global company, he currently plays

an invaluable role in advising on our global expansion

and organisational design. We have therefore asked

Patrick to continue on the board. He has agreed, but

advised us that he will wish to stand down by the end

of 2013. In the meantime, he will stand down from the

audit and remuneration committees, both of which will

continue to have a majority of independent directors.

Succession planning

The board views succession planning – not only at

board and executive committee level but considerably

deeper – as one of its prime responsibilities. This is

especially the case in a creative business like Pearson

which is heavily dependent on talented people.

Each year we devote one full meeting to organisation

structure and succession planning, and how they

support delivery of our strategic goals. We look in

detail at 20 to 30 of the most senior roles in Pearson,

ensuring that there are several credible candidates

for each role. Those candidates will be well known to

the board – who spend considerable time visiting our

businesses and people outside the regular schedule

of board meetings – and will have development plans

in place to round out their experience and skills and

give them every possible chance of progressing

their careers.

We hope this report clearly sets out how your

company is run, and how we align governance and our

board agenda with the strategic direction of Pearson.

We always welcome questions or comments

from shareholders, either via our website

(www.pearson.com) or in person at our annual

shareholders’ meeting.

Glen Moreno Chairman


Board governance

Corporate governance

Introduction

The board believes that during 2011 the company

was in full compliance with the UK Corporate

Governance Code (the Code), except for a short

period of time when it did not comply with the

required ratio of independent non-executive directors

to executive directors. Following the resignation

of Terry Burns and the passing of C K Prahalad in

2010, there was an imbalance of executive and

non-executive directors on the board during January

and February 2011. However, with effect from

1 March 2011, Josh Lewis was appointed to the

board as an independent non-executive director

and, upon appointment, joined the nomination and

audit committees.

In addition, with effect from 1 January 2012, Vivienne

Cox was appointed to the board as an independent

non-executive director and, on appointment, joined all

of its committees.

The board embraces the Code’s underlying principles

with regard to board balance and diversity and the

nomination committee, led by the chairman, is actively

seeking an additional suitable candidate who possesses

the right mix of knowledge, skills and experience,

specifically in emerging markets, to enhance debate and

decision-making. A detailed account of the provisions

of the Code can be found on the FRC’s website at

www.frc.org.uk and on the company website at

www.pearson.com/investors/shareholder-

information/governance

Composition of the board

The board currently consists of the chairman,

Glen Moreno, five executive directors including the

chief executive, Marjorie Scardino, and six

independent non-executive directors.

Chairman and chief executive

There is a defined split of responsibilities between

the chairman and the chief executive. The chairman is

primarily responsible for the leadership of the board

and ensuring its effectiveness; the chief executive is

responsible for the operational management of the

business and for the development and implementation

of the company’s strategy as agreed by the board.

The roles and responsibilities of the chairman and

chief executive are clearly defined, set out in writing

and agreed by the board.

Senior independent director

Patrick Cescau is the company’s senior independent

director. The board believes that Patrick’s extensive

knowledge of Pearson together with his broad

commercial experience, make him highly suitable

for this role.

His role includes meeting regularly with the chairman

and chief executive to discuss specific issues,

e.g. strategy, as well as being available to shareholders

if they should have concerns that have not been

addressed through the normal channels. Patrick also

makes a significant contribution to determining the

structure and content of board meetings. During the

year, Patrick held separate sessions with the other

non-executive directors, the chief executive and an

independent external evaluator, Boardroom Review,

to appraise the performance of the chairman.

The senior independent director would be expected

to chair the nomination committee in the event that

it was considering succession to the role of chairman

of the board.

Independence of directors

The board reviews the independence of each of

the non-executive directors annually. This includes

reviewing their external appointments and any

potential conflicts of interest as well as assessing

their individual circumstances in order to ensure

that there are no relationships or circumstances

likely to affect their character or judgement.

In particular, the board undertook a thorough review

of Susan Fuhrman and Patrick Cescau, as they have

served on the board for over seven and nine years

respectively. In his letter introducing the governance

report, the chairman has explained the board’s

consideration of Patrick’s position.

After thoroughly reviewing Susan’s positive contribution

to board and committee work, and her position as a

leader in educational reform and efficacy, the board has

asked her to continue to serve as a director.

All of the other non-executive directors were

considered by the board to be independent for

the purposes of the Code during the year ended

31 December 2011.


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Conflicts of interest

Since October 2008, directors have had a statutory

duty under the Companies Act 2006 (the Act) to avoid

conflicts of interest with the company. The company’s

Articles of Association (Articles) allow the directors

to authorise conflicts of interest. The company has

established a procedure to identify actual and potential

conflicts of interest, including all directorships or other

appointments to, or relationships with, companies

which are not part of the Pearson Group and which

could give rise to actual or potential conflicts of

interest. Such conflicts are then considered for

authorisation by the board. The relevant director

cannot vote on an authorisation resolution, or be

counted in the quorum, in relation to the resolution

relating to his/her conflict or potential conflict.

The board reviews any authorisations granted

on an annual basis.

Board meetings

The board met six times in 2011, with most meetings

taking place over two days. In recent years, we have

developed our board meeting agenda to ensure that

board discussion and debate is centred on the key

strategic issues facing the company. Over the course of

2011 the major items covered by the board included:

BUSINESS PERFORMANCE: 24 AND 25 FEBRUARY 2011, LONDON

› 2010 report and accounts and dividend

recommendation

› 2011 operating plan

› Risk assessment and review of mitigating actions

› Annual review of authorised conflicts

› Annual review of chief executive authorisation limits

and procedures

› Appointment of Josh Lewis to the board

› The action to take with regard to the Libyan

Investment Authority’s investment in Pearson

GOVERNANCE: 28 APRIL 2011, LONDON

› Feedback on 2010 report and accounts

› Report on shareholders’ views

› Review of corporate social responsibility

› External board effectiveness review

› Acquisition of Schoolnet

STRATEGY: 1 AND 2 JUNE 2011, BEIJING

› Strategy discussions – review of China businesses

› Acquisition of Education Development International plc

BUSINESS PERFORMANCE: 28 JULY 2011, LONDON

› Interim results

› Post-acquisition reviews

› Acquisition of Connections Education

› Acquisition of Stark Holding

STRATEGY: 6 AND 7 OCTOBER 2011, CALIFORNIA

› Review of technology strategy

› Strategic plan 2011 to 2013

› Review of audit, remuneration and nomination

committee terms of reference

› Disposal of stake in FTSE

› Acquisition of Global Education

› Acquisition of TQ

› Investment in Companhia das Letras

STRATEGIC PLAN: 8 AND 9 DECEMBER 2011, NEW YORK

› Strategic review of Pearson legacy businesses

› Risk assessment and review of mitigating actions

› SEC and FINRA investigation in respect of the

acquisition of Global Education

› Ofqual review of exam awarding bodies

› Appointment of Vivienne Cox to the board

In June 2011, the Pearson board held a two day meeting in

Beijing, China. The purpose of this board meeting was to review

our businesses in China. During their three day stay the board

met with the key local management of all our businesses

operating in mainland China and Hong Kong, visited a number of

Wall Street English language schools and met key customers and

other people who have important relationships with our China

businesses. During 2012 the board plans to have similar meetings

with local businesses in Brazil and India.

CASE STUDY

Looking to the future –

planning for growth in China


Board governance continued

The following table sets out the attendance of the

company’s directors at board and committee meetings

during 2011:

Board meetings (max 6)

Audit committee

meetings (max 4)

Rem. committee

meetings (max 4)

Nom. committee

meetings (max 3)

Chairman

Glen Moreno 6 4 3

Executive directors

Marjorie Scardino 6 3

Will Ethridge 5

Rona Fairhead 5

Robin Freestone 6

John Makinson 6

Non-executive

directors

David Arculus 6 4 4 3

Patrick Cescau 6 3 4 2

Susan Fuhrman 6 4 2

Ken Hydon 6 4 4 3

Josh Lewis* 5 2 2

*appointed 1 March 2011.

The role and business of the board

The formal matters reserved for the board’s decision

and approval include:

› Determining the company’s strategy in consultation

with management and reviewing performance

against it;

› Any decision to cease to operate all or any material

part of the company’s business;

› Major changes to the company’s corporate structure,

management and control structure or its status as a

public limited company;

› Approval of all shareholder circulars, resolutions and

corresponding documentation and press releases

concerning matters decided by the board;

› Acquisitions, disposals and capital projects above

£15m per transaction or project;

› All Pearson plc guarantees over £10m;

› Treasury policies;

› Setting interim dividends, recommending final dividends

to shareholders and approving financial statements;

› Borrowing powers;

› Appointment of directors;

› Appointment and removal of the company secretary;

› Ensuring adequate succession planning for the board

and senior management;

› Determining the remuneration of the non-executive

directors, subject to the Articles and shareholder

approval as appropriate;

› Approving the written division of responsibilities

between the chairman and the chief executive and

approval of the terms of reference of board

committees;

› Reviewing the Group’s overall corporate governance

arrangements, including the performance of the board,

its committees and individual directors and determining

the independence of directors; and

› Determining the nature and extent of the significant

risks the company is willing to take in achieving its

strategic objectives and maintaining sound risk

management and internal control systems.

The board receives timely, regular and necessary

financial, management and other information to fulfil its

duties. Comprehensive board papers are circulated to

the board and committee members at least one week

in advance of each meeting and the board receives

monthly reports from the chief executive. Directors

can obtain independent professional advice, at the

company’s expense, in the performance of their duties

as directors. All directors have access to the advice

and services of the company secretary.

Non-executive directors meet with local senior

management every time board and committee

meetings are held at the locations of operating

companies. This allows the non-executive directors

to share their experience and expertise with senior

managers and also enables the non-executive

directors to better understand the abilities of senior

management, which in turn will help them assess

the company’s prospects and plans for succession.

Board evaluation

The board conducts an annual review of its

effectiveness. For the review of 2010, conducted in

early 2011, the board commissioned a board

effectiveness review from an independent third party

provider, Boardroom Review (which has no other

connection to the company). This review was designed

to be forward looking; assessing the quality of the

board’s decision making and debate, its overall

contribution to, and impact on, the long term health

and success of the business and its preparation for

future challenges.


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The review covered a variety of aspects associated

with board effectiveness, including the board’s ability to

achieve its objectives, to work together effectively and

the management of its time. This was carried out

through confidential interviews with all members of

the board, through board observation and through

a review of selected board papers.

Following the review a discussion document was

produced to facilitate the board’s discussion at their

meeting in April, as well as to provide a reference point

for the board’s development and change.

The evaluation for 2010 indicated that the culture of

the board is dominated by a sense of cohesiveness and

collaboration; the dynamics encourage openness,

transparency and cooperation between executive

and non-executive directors. During the review itself,

the board was seen to demonstrate several areas of

strength, including:

› a focused strategic approach;

› a thoughtful approach to control and risk;

› strong executive leadership and corporate culture;

› a healthy alignment between performance and reward;

› a positive culture, dynamic debate, and leadership

from the chairman; and

› the effective management of time and information.

The review also highlighted an opportunity for

improvement, relating to the quality of discussion and

debate over changes in the competitive environment,

particularly with regard to technology and emerging

markets. The board addressed this issue at subsequent

board meetings during 2011, including holding a

technology strategy session in October and arranging

board visits to emerging markets; China in June 2011,

Brazil and India in 2012.

During the course of the year the executive directors

were also evaluated by the chief executive on their

performance against personal objectives under the

company’s appraisal mechanism. A proportion

(which for 2012 may be up to 20%) of the total

annual incentive opportunity is based on functional,

operational, strategic and non-financial objectives

relevant to the executives’ specific area of

responsibility. The chairman leads the assessment of

the chief executive and the non-executive directors,

led by the senior independent director, conduct a

review of the chairman’s performance.

For the review of 2011, to be conducted during the

early part of 2012, the chairman will meet with each of

the directors, executive and non-executive, on a one

to one basis and discuss the board’s effectiveness and

progress made against objectives. He will also take the

opportunity to discuss with each director their

individual training and development needs.

Directors’ training and induction

Directors receive a significant bespoke induction

programme and a range of information about Pearson

when they join the board. This includes background

information on Pearson and details of board

procedures, directors’ responsibilities and various

governance-related issues, including procedures for

dealing in Pearson shares and their legal obligations

as directors. The induction also includes a series of

meetings with members of the board, presentations

regarding the business from senior executives and a

briefing on Pearson’s investor relations programme.

The directors’ training is supplemented with

presentations about the company’s operations,

by holding board meetings at the locations of operating

companies and by encouraging the directors to visit

operating companies and local management as and

when their schedule allows. Directors can also

make use of external courses.

Josh Lewis was appointed to the board in March 2011 and a

programme of induction was tailored to his particular requirements.

Within the first few months of his appointment, Josh had met with

the senior management teams from each of our businesses, as well

as spending time with all of the members of our management

committee. In addition, Josh visited our operations in China, India

and a number of locations throughout the US. This induction

programme resulted in Josh having a firm understanding of Pearson,

its operations, culture and the key risks and issues the company is

facing. A similar induction process is currently being prepared for

Vivienne Cox, who was appointed to the board in January 2012.

CASE STUDY

Induction – Josh Lewis

appointed to Pearson Board



Directors’ indemnities

In accordance with section 232 of the Act, the

company grants an indemnity to all of its directors.

The indemnity relates to costs incurred by them in

defending any civil or criminal proceedings and in

connection with an application for relief under sections

661(3) and (4) or sections 1157(1)-(3) of the Act,

so long as it is repaid not later than when the

outcome becomes final if: (i) they are convicted in

the proceedings; (ii) judgement is given against them;

or (iii) the court refuses to grant the relief sought.

The company has purchased and maintains directors’

and officers’ insurance cover against certain legal

liabilities and costs for claims in connection with any

act or omission by such directors and officers in the

execution of their duties.

Shareholder engagement

Pearson has an extensive programme of communication

with all of its shareholders – large and small,

institutional and private.

In 2011, we continued with our shareholder outreach

programme, seeing more than 500 institutional and

private investors at more than 300 different institutions

in Australia, Brazil, Canada, China, Continental Europe,

Japan, the UK and the US.

There are five trading updates a year and the chief

executive and chief financial officer present our

preliminary and interim results updates. They also

attend regular meetings throughout the year with

investors both in the UK and around the world.

In 2011, the chief financial officer and the director

of investor relations met with representatives of the

UK Shareholders’ Association. The meeting included

a presentation from Pearson describing the

company’s performance and a question and answer

session to give shareholders the opportunity to

question management directly.

The chairman and senior independent director also

make themselves available to meet any significant

shareholder as required. The non-executive directors

meet informally with shareholders both before and

after the AGM and respond to shareholder queries

and requests as necessary.

The chairman ensures that the board is kept informed

of principal investors’ and advisers’ views on strategy

and corporate governance.

At every board meeting, the directors receive

an analysis of the shareholder register highlighting any

significant movements in ownership or the share price,

and the reasons behind the movements. In addition,

every year the board receives a detailed report on the

views of major institutional shareholders, provided

either by our corporate brokers or our independent

investor relations advisers, Makinson Cowell.

We also have an established programme of educational

seminars for our institutional shareholders focusing

on individual parts of Pearson. These seminars are

available to all shareholders via webcast on

www.pearson.com

Private investors represent over 80% of the

shareholders on our register and we make a concerted

effort to engage with them regularly. Shareholders

who cannot attend the AGM are invited to email

questions to the chairman in advance at

[email protected]

We encourage our private shareholders to become

more informed investors and recently invited all

shareholders, who had not already done so, to register

their email addresses. This enables them to receive

email alerts when trading updates and other important

announcements are added to our website.

We are committed to ensuring that all our

shareholders receive their dividends and with the final

cash dividend mailing this year, we will be informing any

shareholder who has outstanding unclaimed dividends,

of the amounts owed to them and how they can

claim these.

We also make a particular effort to communicate

regularly with our employees, a large majority of whom

are shareholders in the company. We post all company

announcements on our website, www.pearson.com,

as soon as they are released, and major shareholder

presentations are made accessible via webcast or

conference call. Our website contains a dedicated

investor relations section with an extensive archive of

past announcements and presentations, historical

financial performance, share price data and a calendar

of events. It also includes information about all of our

businesses, links to their websites and details of our

corporate responsibility policies and activities.

Our AGM – which will be held on 27 April this year –

is an opportunity for all shareholders to meet the

board and to hear presentations about Pearson’s

businesses and results.


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Board committees

The board has established three committees: the

nomination committee, the remuneration committee

and the audit committee. The chairmen and members

of these committees are appointed by the board on

the recommendation (where appropriate) of the

nomination committee and in consultation with each

relevant committee chairman.

NOMINATION COMMITTEE

Members David Arculus, Patrick Cescau, Vivienne Cox, Susan Fuhrman, Ken Hydon, Josh Lewis, Glen Moreno and Marjorie Scardino

Chairman Glen Moreno

The nomination committee meets at least once a year

and as and when required. The committee primarily

monitors the composition and balance of the board

and its committees, and identifies and recommends to

the board the appointment of new directors and/or

committee members.

During 2011, the committee considered the

recruitment of two non-executive directors, concluding

with the appointment of Josh Lewis and Vivienne Cox

to the board effective March 2011 and January 2012

respectively.

In addition, the committee met in February 2012 to

review succession planning for non-executive and

executive board positions and senior management,

as well as board committee membership.

The committee ensures that the directors of Pearson

demonstrate a broad balance of skills, experience,

independence, knowledge and diversity (including

gender diversity). There are currently four female

directors on the board, two of whom are executive

directors. The committee and the board always take

account of diversity when considering board

appointments and will continue to do so, whilst

ensuring that appointments are made based on merit

and relevant experience.

Pearson continues to show evidence of progress in

relation to the retention of people with diverse

backgrounds for both entry level and management

positions and has made significant progress over the

years in advancing women and culturally diverse

people. As at December 2011, 27% of Pearson’s top

managers were women, a 35% increase from 2008.

The plan for 2012 is to continue to develop

programmes and relationships that help attract

talented diverse people into our business and retain

them and to continue to track our progress.

Whilst the chairman of the board chairs the

nomination committee, he is not permitted to chair

meetings when the appointment of his successor is

being considered or during a discussion regarding his

performance.

The committee has written terms of reference which

clearly set out its authority and duties. These can be

found on the company website at



REMUNERATION COMMITTEE

Members David Arculus, Patrick Cescau, Vivienne Cox, Ken Hydon and Glen Moreno

Chairman David Arculus

The remuneration committee reports to the full board

and a letter from the chairman of the remuneration

committee and its report on directors’ remuneration,

which has been considered and adopted by the board,

is set out on pages 65 to 89.

The committee met four times during the year, and has

written terms of reference which clearly set out its

authority and duties. These can be found on the

company website at





AUDIT COMMITTEE

Members David Arculus, Patrick Cescau, Vivienne Cox, Susan Fuhrman, Ken Hydon and Josh Lewis

Chairman Ken Hydon

Members

All of the audit committee members are independent

non-executive directors and have financial and/or

related business experience due to the senior positions

they hold or held in other listed or publicly traded

companies and/or similar public organisations. Ken

Hydon, chairman of the committee, is the company’s

designated financial expert. He is a fellow of the

Chartered Institute of Management Accountants,

the Association of Chartered Certified Accountants

and the Association of Corporate Treasurers.

He also serves as audit committee chairman for

Tesco plc, Reckitt Benckiser Group plc and Royal

Berkshire NHS Foundation Trust.

The qualifications and relevant experience of the other

committee members are detailed on page 48.

Role and responsibilities

The committee has written terms of reference which

clearly set out its authority and duties. These are

reviewed annually and can be found on the company

website at www.pearson.com/investors/shareholder-


The committee has been established by the board

primarily for the purpose of overseeing the accounting,

financial reporting, internal control and risk

management processes of the company and the

audit of the financial statements of the company.

The committee is responsible for assisting the board’s

oversight of the quality and integrity of the company’s

external financial reporting and statements and

the company’s accounting policies and practices.

The Group’s internal and external auditors have

direct access to the committee to raise any matter of

concern and to report on the results of work directed

by the committee. The committee reports to the full

board at every board meeting immediately following a

committee meeting. It also reviews the independence

of the external auditors, including the provision of non-

audit services (further details of which can be found on

page 60), and ensures that there is an appropriate

audit relationship and that auditor objectivity and

independence is upheld.

As audit committee chairman, I consider

the key role of the committee to be in

providing oversight and reassurance to

the board, specifically with regard to the integrity

of the company’s financial reporting, accounting

policies, risk management and internal control

processes and governance framework.

Fundamental to this role is the committee’s access

to local management. Committee meetings are

always attended by the chief financial officer and

head of Group internal audit, and often by the chief

executive and chairman. Individual managers join

meetings for specific topics, e.g. treasury or business

continuity planning. In total,15 managers attended

one or more meetings during the year. During the

board’s visit to Beijing, members of the committee

met with local senior financial management to

discuss risk management, financial control and

the Pearson code of conduct. In December,

the committee met with the company’s chief

information officer and director of digital strategy to

discuss the approach of Pearson Technology to risk

management. The committee will continue this

method during 2012, and is planning to meet local

management in at least two regular committee

meetings and whenever the board is scheduled to

meet in overseas locations.

Also fundamental to the role of the committee is its

relationship with both the external auditors and

Group internal audit. The committee has a healthy

interaction with both and PWC attend all our

regular committee meetings.

We always need to be learning, as the business

progresses and the environments in which we

operate change.

Ken Hydon


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External audit

Based on management’s recommendations, the

committee reviews the proposal on the appointment

of the external auditors. The committee reviewed the

effectiveness and independence of the external

auditors during 2011 and remains satisfied that the

auditors provide effective independent challenge to

management. The committee will continue to review

the performance of the external auditors on an annual

basis and will consider their independence and

objectivity, taking account of all appropriate guidelines.

There are no contractual obligations restricting the

committee’s choice of external auditors. In any event,

the external auditors are required to rotate the audit

partner responsible for the Group audit every five

years. The current lead audit partner has been in place

for four years and will rotate next year. In accordance

with our external auditor policy, in 2010 Group internal

audit performed a formal assessment of audit fees,

services and independence. This formed the basis for a

recommendation to the board to continue with PwC.

During the year, the committee discussed the planning,

conduct and conclusions of the external audit as

it proceeded.

At the July 2011 audit committee meeting, the

committee discussed and approved the auditors’ Group

audit plan, in which they identified the following key

risks of misstatement of the Group’s financial statements:

› Revenue recognition, specifically in relation to long-

term contract accounting and increasingly to digital

revenue streams where management assumptions

and estimates are necessary;

› Accounting for acquisitions and disposals in light

of material transactions in 2011, in particular,

valuation of acquired intangibles which involves

significant judgement;

› Key balance sheet judgements, since small changes in

provisioning judgements or methodology can have

notable impacts on the Group’s balance sheet and

income statement; and

› Assessment of goodwill and intangible assets for

impairment in the context of current market

conditions, recognising that management judgement

is required.

The committee discussed these issues with the

auditors at the time of their review of the half year

interim financial statements in July 2011 and again at

the conclusion of their audit of the financial statements

for the year in February 2012. In December 2011,

the committee discussed with the auditors the status

of their work, focusing on their work in relation to

internal controls. As the auditors concluded their audit,

they explained to the committee:

› The work they had conducted over revenue,

which included targeted procedures at businesses

which were considered to have more complex

revenue recognition, such as the assessment and

testing businesses;

› The results of their review of acquisition accounting for

all significant acquisitions, encompassing assessment of

management’s valuations of intangible assets as well as

other purchase price adjustments;

› The work they had done to test management’s

assumptions and estimates in relation to balance sheet

judgements (encompassing provisions for doubtful

debts and inventory, recoverability of pre-publication

assets and authors’ advances, reserves for sales

returns, estimates of tax and pension liabilities and

other contingencies) and how they had satisfied

themselves that these were reasonable;

› The results of their review of the impairment model,

including their challenge of management’s underlying

cash flow projections and consideration of key

assumptions such as discount rates and perpetuity

rates and sensitivities, which indicated that all cash-

generating units had adequate headroom;

› The outputs of their controls testing for Sarbanes-

Oxley section 404 reporting purposes and in support

of their financial statements audit; and

› The review of the company’s ‘going concern’ reports.

The auditors also reported to the committee the

misstatements that they had found in the course of

their work, which were insignificant, and the

committee confirmed that there were no such material

items remaining unadjusted in these financial statements.



Training

The committee receives regular technical updates

as well as specific or personal training as required.

Committee members also meet with local

management on an ongoing basis in order to gain

a better understanding of how Group policies are

embedded in operations. For example, during its visit

to Beijing in June 2011, the committee met with local

senior finance managers.

Meetings

The committee met four times during the year with

the chief financial officer, head of Group internal audit,

members of the senior management team and the

external auditors in attendance. The committee also

met regularly in private with the external auditors and

the head of Group internal audit.

At every meeting, the committee considered reports

on the activities of the Group internal audit function,

including the results of internal audits, risk reviews,

project assurance reviews and fraud and

whistleblowing reports. The committee also monitored

the company’s financial reporting, internal controls and

risk management procedures and considered any

significant legal claims and regulatory issues in the

context of their impact on financial reporting.

Specifically, the committee considered the following

matters during the course of the year:

› The 2010 annual report and accounts: preliminary

announcement, financial statements and income

statement;

› The Group accounting policies;

› Compliance with the UK Corporate Governance

Code;

› Form 20-F and related disclosures including the annual

Sarbanes-Oxley Act 404 attestation of financial

reporting internal controls;

› Receipt of the external auditors’ report on the Form

20-F and on the year end audit;

› Assessment of the effectiveness of the Group’s internal

control environment;

› Reappointment, remuneration and engagement letter

of the external auditors;

› UK Bribery Act adequate procedures guidance;

› Risk management in Asia;

› Review of the interim financial statements and

announcement;

› Annual re-approval of the internal audit mandate;

› Compliance with SEC & NYSE requirements including

Sarbanes-Oxley;

› Reviews of the effectiveness of the audit committee,

the external auditors and the Group internal audit

function;

› Pearson’s anti-corruption programme;

› Review of the committee’s terms of reference;

› Annual internal audit plan;

› Review of company risk returns including Social,

Ethical and Environmental (SEE) risks; and

› Annual review of treasury policy.

In February 2012, the committee also considered the

2011 annual report and accounts, including the

preliminary announcement, financial statements,

business review, directors’ report, corporate

governance compliance statement and the income

statement.

Internal control and risk management

The directors confirm they have conducted a review

of the effectiveness of the Group’s systems of risk

management and internal controls, including financial,

operational and compliance controls and risk

management systems, in accordance with the UK

Corporate Governance Code and the Turnbull

guidance as revised. These systems have been

operating throughout the year and to the date of

this report.

The key elements and procedures that have been

established to provide effective risk management and

internal control systems are described below:

Control environment

The board of directors has overall responsibility for

Pearson’s system of internal control, which is designed

to manage, rather than eliminate, the risks facing the

Group, safeguard assets and provide reasonable, but

not absolute, assurance against material financial

misstatement or loss.

Responsibility for monitoring financial management and

reporting and risk management and internal control

systems has been delegated to the audit committee by

the board. At each meeting, the audit committee

considers reports from management, Group internal

audit and the external auditors, with the aim of

reviewing the effectiveness of the internal financial and

operating control environment of the Group.


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The identification and mitigation of significant business

risks is the responsibility of Group senior management

and operating company management. Each operating

company, including the corporate centre, maintains

internal controls and procedures appropriate to its

structure, business environment and risk assessment,

whilst complying with Group policies, standards

and guidelines.

Financial management and reporting

There is a comprehensive strategic planning, budgeting

and forecasting system with an annual operating plan

approved by the board of directors. Monthly financial

information, including trading results, balance sheets,

cash flow statements, capital expenditures and

indebtedness, is reported against the corresponding

figures for the plan and prior years, with corrective

action outlined by the appropriate senior executive.

Group senior management meet, on a quarterly basis,

with operating company management to review their

business and financial performance against plan and

forecast. Major business risks relevant to each

operating company as well as performance against the

stated financial and strategic objectives are reviewed in

these meetings.

We have an ongoing process to monitor the risks and

effectiveness of controls in relation to the financial

reporting and consolidation process including the

related information systems. This includes up-to-date

Group financial policies, formal requirements for

business unit finance functions, Group consolidation

reviews and analysis of material variances, Group

finance technical reviews, including the use of technical

specialists, and review and sign-off by senior finance

managers. These processes are monitored and

assessed during the year by the Group internal audit

and Group compliance functions.

These controls include those over external financial

reporting which are documented and tested in

accordance with the requirements of section 404

of the Sarbanes-Oxley Act, which is relevant to

our US listing.

The effectiveness of key financial controls is subject

to management review and self certification and

independent evaluation by Group internal audit.

Risk management

A risk management framework is in place to identify,

evaluate and manage risks, including key financial

reporting risks. Operating companies undertake semi-

annual risk reviews to identify new or potentially

under-managed risks. Throughout the year, risk

sessions facilitated by the head of Group internal audit

and risk assurance are held with Group and operating

company management to identify the key risks the

company faces in achieving its objectives, to assess

the probability and impact of those risks and to

document the actions being taken to manage those

risks. The Pearson management committee reviews

the output of these sessions, focusing on the significant

risks facing the business. Management has the

responsibility to consider and execute appropriate

action to mitigate these risks whenever possible.

The results of these reviews are reported to the board

in detail via the audit committee.

Group internal audit

The Group internal audit function is responsible for

providing independent assurance to management on

the design and effectiveness of internal controls to

mitigate financial, operational and compliance risks.

The risk-based annual internal audit plan is approved

by the audit committee. Recommendations to improve

internal controls and to mitigate risks, or both, are

agreed with operating company management after

each audit. Formal follow-up procedures allow Group

internal audit to monitor operating companies’

progress in implementing its recommendations and to

resolve any control deficiencies. The Group internal

audit function also has a remit to monitor significant

Group projects, in conjunction with the central project

management office and to provide assurance that

appropriate project governance and risk management

strategies are in place. Group internal audit has a

formal collaboration process in place with the external

auditors to ensure efficient coverage of internal

controls. Regular reports on the work of Group

internal audit are provided to executive management

and, via the audit committee, to the board.

The head of Group internal audit is jointly responsible

with the Group legal counsel for monitoring

compliance with our Code of Conduct, and

investigating any reported incidents including ethical,

corruption and fraud allegations. The Pearson anti-

bribery and corruption programme has been enhanced

to support the UK Bribery Act 2010.



Treasury management

The treasury department operates within policies

approved by the board and its procedures are reviewed

regularly by the audit committee. Major transactions

are authorised outside the department at the requisite

level, and there is an appropriate segregation of duties.

Frequent reports are made to the chief financial officer

and regular reports are prepared for the audit

committee and the board.

Insurance

Insurance is provided through Pearson’s insurance

subsidiary or externally, depending on the scale of the

risk and the availability of cover in the external market,

with the objective of achieving the most cost-effective

balance between insured and uninsured risks.

Going concern

Having reviewed the Group’s liquid resources and

borrowing facilities and the Group’s 2012 and 2013

cash flow forecasts, the directors believe that the

Group has adequate resources to continue as a going

concern. For this reason, the financial statements have,

as usual, been prepared on that basis. Information

regarding the Group’s borrowing liabilities and financial

risk management can be found in notes 18 and 19 on

pages 130 to 138.

Share capital

Details of share issues are given in note 27 to the

accounts on page 150. The company has a single class

of shares which is divided into ordinary shares of 25p

each. The ordinary shares are in registered form.

As at 31 December 2011, 815,626,237 ordinary shares

were in issue. At the AGM held on 28 April 2011, the

company was authorised, subject to certain conditions,

to acquire up to 81,310,000 ordinary shares by market

purchase. Shareholders will be asked to renew this

authority at the AGM on 27 April 2012.

Information provided to the company pursuant to

the Financial Services Authority’s Disclosure and

Transparency Rules is published on a Regulatory

Information Service and on the company’s website.

As at 31 December 2011, the company had been

notified under DTR5 of the following significant voting

rights in its shares:

Number of shares Percentage

Legal & General Group plc 32,385,175 3.97%

Libyan Investment Authority 24,431,000 3.01%

No notifications under DTR5 had been received by

the company during the period from 1 January 2012 to

5 March 2012, being the last practicable date before

the publication of this report.

Annual General Meeting (AGM)

The notice convening the AGM, to be held at 12 noon

on Friday, 27 April 2012 at IET London, 2 Savoy Place,

London WC2R 0BL, is contained in a circular to

shareholders to be dated 22 March 2012.

Registered auditors

In accordance with section 489 of the Act,

a resolution proposing the reappointment of

PricewaterhouseCoopers LLP (PwC) as auditors to

the company will be proposed at the AGM, at a level

of remuneration to be agreed by the directors.

Auditors’ independence

In line with best practice, our relationship with PwC

is governed by our external auditors policy, which is

reviewed and approved annually by the audit

committee. The policy establishes procedures

to ensure the auditors’ independence is not

compromised, as well as defining those non-audit

services that PwC may or may not provide to Pearson.

These allowable services are in accordance with

relevant UK and US legislation.

The audit committee approves all audit and non-audit

services provided by PwC. Certain categories of

allowable non-audit services have been pre-approved by

the audit committee subject to the authorities below:

› Pre-approved non-audit services can be authorised by

the chief financial officer up to £100,000 per project,

subject to a cumulative limit of £500,000 per annum;

› Tax compliance and related activities up to the greater

of £1,000,000 per annum or 50% of the external audit

fee; and

› For forward-looking tax planning services we use

the most appropriate adviser, usually after a tender

process. Where we decide to use our independent

auditors, authority, up to £100,000 per project subject

to a cumulative limit of £500,000 per annum, has been

delegated by the audit committee to management.

Services provided by PwC above these limits and all

other allowable non-audit services, such as due

diligence, irrespective of value, must be approved by

the audit committee. Where appropriate, services will

be tendered prior to awarding work to the auditors.


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The audit committee receives regular reports

summarising the amount of fees paid to the auditors.

A full statement of the fees for audit and services is

provided in note 4 to the accounts on page 110.

Statement of directors’ responsibilities

The directors are responsible for preparing the annual

report, the report on directors’ remuneration and the

financial statements in accordance with applicable law

and regulations.

Company law requires the directors to prepare

financial statements for each financial year. Under that

law the directors have prepared the Group and parent

company financial statements in accordance with

International Financial Reporting Standards (IFRSs)

as adopted by the European Union. Under company

law the directors must not approve the financial

statements unless they are satisfied that they give a

true and fair view of the state of affairs of the company

and the Group and of the profit or loss of the Group

for that period.

In preparing these financial statements, the directors

are required to:

› Select suitable accounting policies and then apply

them consistently;

› Make judgements and accounting estimates that are

reasonable and prudent;

› State that the financial statements comply with IFRSs

as adopted by the European Union or disclose and

explain any material departures from those IFRSs; and

› Prepare the financial statements on a going concern

basis, unless it is inappropriate to presume that the

company and/or the Group will continue in business.

The directors are responsible for keeping adequate

accounting records that are sufficient to show and

explain the company’s transactions and disclose with

reasonable accuracy at any time the financial position

of the company and the Group. This enables them to

ensure that the financial statements and the report

on directors’ remuneration comply with the Act and,

as regards the Group financial statements, Article 4

of the IAS Regulation. They are also responsible for

safeguarding the assets of the company and the Group

and for taking reasonable steps for the prevention and

detection of fraud and other irregularities.

The directors are responsible for the maintenance

and integrity of the company’s website. Legislation in

the UK governing the preparation and dissemination

of financial statements may differ from legislation

in other jurisdictions.

Each of the directors, whose names and functions are

listed on pages 46 to 48, confirm that to the best of

their knowledge and belief:

› The Group financial statements, prepared in

accordance with IFRSs as adopted by the EU, give

a true and fair view of the assets, liabilities, financial

position and profit of the Group and company; and

› The directors’ report contained in the annual report

includes a fair review of the development and

performance of the business and the position of the

company and Group, together with a description of

the principal risks and uncertainties that they face.

The directors also confirm that, for all directors in

office at the date of this report:

a) so far as the directors are aware, there is no

relevant audit information of which the company’s

auditors are unaware; and

b) they have taken all the steps that they ought to have

taken as directors in order to make themselves aware

of any relevant audit information and to establish that

the company’s auditors are aware of that information.

Approved by the board on 7 March 2012 and signed

on its behalf by

Philip Hoffman Secretary



Additional information for shareholders

Set out below is other statutory and regulatory

information that Pearson is required to disclose in its

directors’ report.

Amendment to Articles of Association

Any amendments to the Articles of Association of the

company (the Articles) may be made in accordance

with the provisions of the Companies Act 2006

(the Act) by way of a special resolution.

Rights attaching to shares

The rights attaching to the ordinary shares are defined

in the company’s Articles. A shareholder whose name

appears on the company’s register of members can

choose whether his/her shares are evidenced by

share certificates (i.e. in certificated form) or held

electronically (i.e. uncertificated form) in CREST

(the electronic settlement system in the UK).

Subject to any restrictions below, shareholders may

attend any general meeting of the company and,

on a show of hands, every shareholder (or his/her

representative) who is present at a general meeting has

one vote on each resolution for every ordinary share

of which they are the registered holder. A resolution

put to the vote at a general meeting is decided on a

show of hands unless before, or on the declaration of

the result of, a vote on a show of hands, a poll is

demanded. A poll can be demanded by the chairman

of the meeting, or by at least three shareholders

(or their representatives) present in person and having

the right to vote, or by any shareholders (or their

representatives) present in person having at least 10%

of the total voting rights of all shareholders, or by any

shareholders (or their representatives) present in

person holding ordinary shares on which an aggregate

sum has been paid up of at least 10% of the total sum

paid up on all ordinary shares. At this year’s AGM

voting will be conducted on a poll.

Shareholders can declare a final dividend by passing an

ordinary resolution but the amount of the dividend

cannot exceed the amount recommended by the

board. The board can pay interim dividends on any

class of shares of the amounts and on the dates and for

the periods they decide. In all cases the distributable

profits of the company must be sufficient to justify the

payment of the relevant dividend. The board may,

if authorised by an ordinary resolution of the

shareholders, offer any shareholder the right to elect

to receive new ordinary shares, which will be

credited as fully paid, instead of their cash dividend.

Any dividend which has not been claimed for 12 years

after it became due for payment will be forfeited and

will then belong to the company, unless the directors

decide otherwise.

If the company is wound up, the liquidator can, with

the sanction of a special resolution passed by the

shareholders, divide among the shareholders all or any

part of the assets of the company and he/she can value

assets and determine how the division shall be carried

out as between the shareholders or different classes

of shareholders. The liquidator can also, with the

same sanction, transfer the whole or any part of the

assets on trustees upon such trusts for the benefit of

the shareholders.

Voting at general meetings

Any form of proxy sent by the company to

shareholders in relation to any general meeting must

be delivered to the company, whether in written or

electronic form, not less than 48 hours before the time

appointed for holding the meeting or adjourned

meeting at which the person named in the

appointment proposes to vote.

No shareholder is, unless the board decides otherwise,

entitled to attend or vote either personally or by proxy

at a general meeting or to exercise any other right

conferred by being a shareholder if he/she or any

person with an interest in shares has been sent a notice

under section 793 of the Act (which confers upon

public companies the power to require information

with respect to interests in their voting shares) and

he/she or any interested person failed to supply the

company with the information requested within 14

days after delivery of that notice. The board may also

decide, where the relevant shareholding comprises at

least 0.25% of the nominal value of the issued shares of

that class, that no dividend is payable in respect of

those default shares and that no transfer of any default

shares shall be registered.

Pearson operates two employee benefit trusts to

hold shares, pending employees becoming entitled

to them under the company’s employee share plans.

There were 14,665,223 shares so held as at

31 December 2011. Each trust has an independent

trustee which has full discretion in relation to the

voting of such shares. A dividend waiver operates

on the shares held in these trusts.


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Pearson also operates a nominee shareholding

arrangement known as Sharestore which holds shares

on behalf of employees. There were 4,137,566 shares

so held as at 31 December 2011. The trustees holding

these shares seek voting instructions from the

employee as beneficial owner, and voting rights are

not exercised if no instructions are given.

Transfer of shares

The board may refuse to register a transfer of a

certificated share which is not fully paid, provided that

the refusal does not prevent dealings in shares in the

company from taking place on an open and proper

basis. The board may also refuse to register a transfer

of a certificated share unless (i) the instrument of

transfer is lodged, duly stamped (if stampable), at the

registered office of the company or any other place

decided by the board, and is accompanied by the

certificate for the share to which it relates and such

other evidence as the board may reasonably require to

show the right of the transferor to make the transfer;

(ii) it is in respect of only one class of shares; and (iii)

it is in favour of not more than four transferees.

Transfers of uncertificated shares must be carried out

using CREST and the board can refuse to register a

transfer of an uncertificated share in accordance with

the regulations governing the operation of CREST.

Variation of rights

If at any time the capital of the company is divided into

different classes of shares, the special rights attaching to

any class may be varied or revoked either:

(i) with the written consent of the holders of at least

75% in nominal value of the issued shares of the

relevant class; or

(ii) with the sanction of a special resolution passed at a

separate general meeting of the holders of the shares

of the relevant class.

Without prejudice to any special rights previously

conferred on the holders of any existing shares or class

of shares, any share may be issued with such preferred,

deferred, or other special rights, or such restrictions,

whether in regard to dividend, voting, return of capital

or otherwise as the company may from time to time

by ordinary resolution determine.

Appointment and replacement of directors

The Articles contain the following provisions in relation

to directors:

Directors shall number no less than two. Directors

may be appointed by the company by ordinary

resolution or by the board. A director appointed by

the board shall hold office only until the next AGM and

shall then be eligible for reappointment, but shall not

be taken into account in determining the directors or

the number of directors who are to retire by rotation

at that meeting. The board may from time to time

appoint one or more directors to hold executive office

with the company for such period (subject to the

provisions of the Act) and upon such terms as the

board may decide and may revoke or terminate any

appointment so made.

The Articles provide that, at every AGM of the

company, at least one-third of the directors shall retire

by rotation (or, if their number is not a multiple of

three, the number nearest to one-third). The first

directors to retire by rotation shall be those who wish

to retire and not offer themselves for re-election.

Any further directors so to retire shall be those of the

other directors subject to retirement by rotation who

have been longest in office since they were last re-

elected but, as between persons who became or were

last re-elected on the same day, those to retire shall

(unless they otherwise agree among themselves)

be determined by lot. In addition, any director who

would not otherwise be required to retire shall

retire by rotation at the third AGM after they were

last re-elected.

Notwithstanding the provisions of the Articles, the

board has resolved that all directors should offer

themselves for re-election annually, in accordance

with the UK Corporate Governance Code.

The company may by ordinary resolution remove any

director before the expiration of his/her term of office.

In addition, the board may terminate an agreement or

arrangement with any director for the provision of

his/her services to the company.



Powers of the directors

Subject to the company’s Articles, the Act and any

directions given by special resolution, the business of

the company will be managed by the board who may

exercise all the powers of the company, including

powers relating to the issue and/or buying back of

shares by the company (subject to any statutory

restrictions or restrictions imposed by shareholders

in general meeting).

Significant agreements The following significant agreements contain provisions

entitling the counterparties to exercise termination

or other rights in the event of a change of control of

the company: Under the $1,750,000,000 revolving credit facility

agreement dated November 2010 which matures

in November 2015 between, amongst others, the

company, HSBC Bank plc (as facility agent) and the

banks and financial institutions named therein as

lenders (the Facility), any such bank may, upon a

change of control, require its outstanding advances,

together with accrued interest and any other

amounts payable in respect of such Facility, and its

commitments, to be cancelled, each within 60 days of

notification to the banks by the facility agent. For these

purposes, a ‘change of control’ occurs if the company

becomes a subsidiary of any other company or one or

more persons acting either individually or in concert,

obtains control (as defined in section 1124 of the

Corporation Tax Act 2010) of the company. Shares acquired through the company’s employee

share plans rank pari passu with shares in issue and

have no special rights. For legal and practical reasons,

the rules of these plans set out the consequences of a

change of control of the company.


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Report on directors’ remuneration

Dear Shareholder

The remuneration committee believes that the

purpose of its remuneration policy is to support the

company’s strategy and to help deliver sustained

performance in the interests of all stakeholders.

We are committed to long-term value creation and

this sets the agenda for our approach to remuneration.

The company has performed strongly and

has delivered:

› record earnings

› a share price around its highest level for a decade

› total shareholder return ahead of that of the market and our sector

› return on invested capital above our cost of capital

› Pearson’s 20th straight year of increasing our dividend above the rate of inflation. Over the past ten years we have increased our dividend at a compound annual rate of 7%, returning more than £2.5bn to shareholders

Our remuneration policy centres on three major

elements to support and sustain performance:

competitive base salaries that reflect the market and

individual roles and contribution; annual incentives that

reward achievement of strategic goals; and long-term

incentives that drive long-term earnings and share price

growth and encourage people to acquire and hold

Pearson shares in line with shareholders’ interests.

Pearson’s people have shared in the company’s success

through cash awards and worldwide participation in

share ownership plans continuing practices first started

in 1998.

We continue to keep our remuneration policy under

review in light of the prevailing economic conditions

and the impact of these on the company’s objectives

and strategy.

The remuneration committee is also sensitive to the

current social and economic environment surrounding

executive compensation.

For 2012, the committee endorsed the

recommendation of the executive directors and other

members of the Pearson Management Committee that

they should receive no increase in base salaries.

In addition, the committee has decided that there will

be a reduction in the number of shares awarded to the

Pearson Management Committee as their long-term

incentives.

Looking back to some specific aspects of policy:

› we undertook a normal review of base salaries

for 2011 that took into account the guideline for

the general level of increases elsewhere across

the company

› annual incentives paid to executives for 2011

performance were generally lower than for 2010,

reflecting more challenging targets and a tougher

business environment

› shareholders approved the renewal of the long-term

incentive plan at the Annual General Meeting (AGM)

on 28 April 2011

› we introduced formal shareholding guidelines for

executive directors to complement the operation of

the company’s long-term incentive arrangements

› we reviewed the company’s powers to reclaim

variable remuneration in exceptional circumstances

of misstatement or misconduct

Our policy and practice is summarised in more detail

in the remainder of this report.

Finally, I have great pleasure in welcoming Vivienne

Cox, who is widely experienced in remuneration

matters, as a member of the committee with effect

from her appointment as independent non-executive

director of the board on 1 January 2012. I would also

like to thank my fellow members of the committee and

the people who have assisted us for their contribution

over the past year.

David Arculus Chairman, Remuneration Committee


Report on directors’ remuneration continued

Governance

The board presents its report on directors’

remuneration to shareholders. This report complies

with Schedule 8 of the Large and Medium-sized

Companies and Groups (Accounts and Reports)

Regulations 2008 and was approved by the board

of directors on 7 March 2012.

The committee believes that the company has

complied with the provisions regarding remuneration

matters contained within the UK Corporate

Governance Code.

We will put a resolution to shareholders at the AGM

on 27 April 2012 inviting them to consider and

approve this report.

The remuneration committee & its activities

David Arculus chaired the remuneration committee

for the year 2011; the other members were Patrick

Cescau, Ken Hydon and Glen Moreno. David Arculus,

Patrick Cescau and Ken Hydon are independent non-

executive directors. Glen Moreno, chairman of the

board, is a member of the committee as permitted

under the UK Corporate Governance Code.

Terry Burns stepped down from his membership of

the committee and his role as a non-executive

director on 30 April 2010.

Marjorie Scardino, chief executive, Robin Freestone,

chief financial officer, Robin Baliszewski, director for

people, Robert Head, director for executive reward,

and Stephen Jones, head of company secretarial and

deputy secretary, provided material assistance to the

committee during the year. They attended meetings of

the committee, although none of these was involved in

any decisions relating to his or her own remuneration.

To ensure that it receives independent advice, the

committee has appointed Towers Watson to supply

survey data and to advise on market trends, long-term

incentives and other general remuneration matters.

Towers Watson also advised the company on health

and welfare benefits in the US and provided consulting

advice directly to certain Pearson operating companies.

The committee’s principal duty is to determine

and regularly review, having regard to the UK

Corporate Governance Code and on the advice of

the chief executive, the remuneration policy and the

remuneration and benefits packages of the executive

directors and other members of the Pearson

Management Committee. This includes base salary,

annual and long-term incentive entitlements and

awards, and pension arrangements, and any

other benefits.

The Committee’s duties are also:

› to review and approve corporate goals and objectives

relevant to executive compensation and to evaluate

performance in light of those goals and objectives

› to approve the company’s long-term incentive and

other share plans

› to advise and decide on general and specific

arrangements in connection with the termination

of employment of executive directors and other

members of the Pearson Management Committee

› to have delegated responsibility for determining the

remuneration and benefits package of the chairman

of the board

› to ensure that all provisions regarding disclosure of

information are fulfilled

› to appoint and set the terms of reference for any

remuneration consultants who advise the committee

and monitor the cost of such advice.

The committee’s full charter and terms of reference

are available on the company’s website.

The committee met four times during 2011.

The matters discussed and actions taken were

as follows:

17 AND 25 FEBRUARY 2011

› Reviewed and approved 2010 annual incentive plan

payouts

› Reviewed and approved 2008 long-term incentive plan

payouts and release of shares

› Approved vesting of 2006 and 2008 annual bonus

share matching awards and release of shares

› Reviewed and approved 2011 base salary increases for

the Pearson Management Committee

› Reviewed and approved 2011 Pearson and operating

company annual incentive plan targets

› Reviewed and approved 2011 individual annual

incentive opportunities for the Pearson Management

Committee

› Discussed renewal of long-term incentive plan

› Reviewed and approved 2011 long-term incentive

awards and associated performance conditions for the

Pearson Management Committee


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› Reviewed and approved 2010 report on directors’

remuneration

› Noted company’s use of equity for employee

share plans

› Reviewed and approved the remuneration package

for the chief executive

29 JULY 2011

› Approved 2011 long-term incentive awards for

executives and managers

› Reviewed committee’s charter and terms of reference

7 DECEMBER 2011

› Discussed Towers Watson's overview of the current

remuneration environment

› Considered Towers Watson’s report on remuneration

for the Pearson Management Committee for 2012

› Reviewed status of outstanding long-term incentive

awards

› Considered the approach to 2012 long-term incentive

plan awards for the Pearson Management Committee

› Reviewed 2012 annual incentive plan metrics

› Reviewed committee’s performance

Remuneration policy & business strategy

This report sets out the company’s policy on directors’

remuneration that applies to executive directors for

2012 and, so far as practicable, for subsequent years.

Future reports, which will continue to be subject to

shareholder approval, will describe any changes in

this policy.

The committee considers that a successful

remuneration policy needs to be sufficiently flexible

to take account of future changes in the company’s

business environment and in remuneration practice.

Our starting point continues to be that total

remuneration should reward both short- and long-

term results, delivering competitive rewards for target

performance, but outstanding rewards for exceptional

company performance.

Our goal as a company is to make an impact on

people’s lives and on society through education and

information. Our strategy to achieve that goal is

pursued by all Pearson’s businesses in some shape or

form and has four parts: long-term investment in our

business; technology; working in fast-growing markets

around the world; and efficiency and scale.

An important measure of our strategy is, of course,

financial performance. In financial terms, Pearson’s goal

is to achieve sustainable growth on three key financial

goals – earnings, cash and return on invested capital,

and reliable cash returns to our investors through

healthy and growing dividends. We believe those are,

in concert, good indicators that we are building the

long-term value of Pearson. So those measures

(or others that contribute to them, such as sales,

profit, and working capital) form the basis of our

annual budgets and plans, and the basis for bonuses

and long-term incentives.

Performance conditions

The performance conditions that we select for the

company’s various performance-related annual or long-

term incentive plans are linked to the company’s

strategic objectives set out above.

As part of our ongoing review, we have concluded

that no fundamental changes are required to the

performance measures used in the company’s annual

and long-term incentive plans.

We will, however, continue to give careful

consideration to the selection and weighting of

these measures and the targets that apply taking into

account the company’s short- and longer- term

strategy and risk and the impact on the sustainability

and future development of the company.

We determine whether or not targets have been met

under the company’s various performance-related

incentive plans based on relevant internal information

and input from external advisers.

Misstatement or misconduct

In accordance with the UK Corporate Governance

Code, in 2011 the committee reviewed the company’s

powers to reclaim variable remuneration in exceptional

circumstances of misstatement or misconduct.

The company will follow its legal rights and reclaim

rewards gained in the event of proven wrong doing

which led to misstatement of the company’s accounts.



Main elements of remuneration

Total remuneration is made up of fixed and performance-linked elements, with each element supporting

different objectives.

Element Objective Performance period Performance conditions

Base salary

(see page 69)

Reflects competitive

market level, role and

individual contribution

Not applicable Normally reviewed annually taking into account

general economic conditions and the wider

pay scene, the level of increases applicable to

employees across the company as a whole,

the remuneration of directors and executives

in comparable companies and individual

performance

Annual incentives

(see page 70)

Motivates achievement of

annual strategic goals

One year Subject to achievement of targets for sales,

earnings per share or profit, working capital,

cash flow and personal objectives

Bonus share

matching

(see page 71)

Encourages executive

directors and other senior

executives to acquire and

hold Pearson shares.

Aligns executives’ and

shareholders’ interests

Three years Subject to achievement of target for earnings per

share growth

Long-term

incentives

(see page 73)

Drives long-term earnings

and share price growth

and value creation.

Aligns executives’ and

shareholders’ interests

Three years Subject to achievement of targets for relative

total shareholder return, return on invested

capital and earnings per share growth

Consistent with its policy, the committee places

considerable emphasis on the performance-linked

elements i.e. annual incentives, bonus share matching

and long-term incentives. Our assessment of the

relative importance of fixed and performance-related

remuneration for each of the directors based on our

policy and the data set out in this report is as follows:

Marjorie Scardino

Will Ethridge

Robin Freestone

Rona Fairhead

John Makinson

PROPORTION OF TOTAL COMPENSATION

Base salary and other fixed remunerationAnnual incentive and bonus share matchingLong-term incentives

30.2% 24.7% 45.1%

36.7% 28.9% 34.4%

33.3% 27.6% 39.1%

31.4% 24.8% 43.8%

43.2% 24.8% 32.0%

Note The method for valuing the different elements of remuneration is summarised in the table on page 69.

We will continue to review the mix of fixed and

performance-linked remuneration on an annual basis,

consistent with our overall philosophy.

Benchmarking

The committee wants our executive directors’

remuneration to be competitive with those of

directors and executives in similar positions in

comparable companies.

For benchmarking purposes, we review remuneration

by reference to the UK and US market depending on

the relevant market or markets for particular jobs.

We look separately at three comparator groups.

First, we use a select peer group of FTSE 100

companies with very substantial overseas operations.

These companies are of a range of sizes around

Pearson, but the method our independent advisers

use to make comparisons on remuneration takes this

variation in size into account. Secondly, for the US,

we use a broad media industry group. And thirdly,

we look at the FTSE 20-50, excluding financial services.


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We use these companies because they represent the

wider executive talent pool from which we might

expect to recruit externally and the pay market to

which we might be vulnerable if our remuneration

was not competitive.

Market assessments against the three groups take

account of those factors which Towers Watson’s

research shows differentiate remuneration for jobs

of a similar nature, such as financial size, board

membership, reporting relationships and international

activities.

For benchmarking purposes, comparison with practice

in other organisations and consistency with survey

data, the main elements of remuneration are valued

as follows:

Element of remuneration Valuation

Base salary Actual base salary

Annual incentive Target level of annual

incentive

Bonus share matching Expected value of matching

award based on 50% of

target level of annual

incentive

Long-term incentive Expected value of long-

term incentive award

Pension and benefits Cost to company of

providing pension and

other benefits

Total remuneration Sum of all elements of

remuneration

Note Expected value means our independent advisers’ assessment of the awards’ net present value taking into account the vesting schedule and the probability that any performance targets will be met.

Base salary

The committee’s normal policy is to review the base

salaries of the executive directors and other members

of the Pearson Management Committee taking

into account general economic conditions and the

wider pay scene, the level of increases applicable

to employees across the company as a whole,

the remuneration of directors and executives in

comparable companies and individual performance.

Before the base salaries and remuneration packages for

the Pearson Management Committee are set for the

coming year, the committee considers a report from

the chief executive and director for people on general

pay trends and pay increases across the company and

an assessment by the committee’s independent

advisers of remuneration relative to the market.

For 2012, the company has reviewed or is reviewing

salaries for employees taking into account the location

and economic conditions of each business as it did

for 2011.

The committee has reviewed executive directors’ base

salaries for 2012 consistent with the policy and process

set out above. In the light of the prevailing economic

conditions and consistent with the action that

continues to be taken across the company to control

costs, the committee endorsed the recommendation

of the executive directors and other members of the

Pearson Management Committee that they

should receive no increase in base salaries for 2012.

Full details of the executive directors’ remuneration for

2012 will be set out in the report on directors’

remuneration for 2012.

For 2011, there was a normal review of base salaries

for the executive directors and other members of the

Pearson Management Committee that took into

account the guideline for the general level of increases

elsewhere across the company. Some individual

increases were above this level because of relativity to

the market, relativity to peers and performance. Full

details of the executive directors’ 2011 remuneration

are set out in table 1 on page 82.

Allowances and benefits

The company’s policy is that benefit programmes

should be competitive in the context of the local labour

market, but as an international company we require

executives to operate worldwide and recognise that

recruitment also operates worldwide.



Annual incentives

The committee establishes the annual incentive plans

for the executive directors and the chief executives of

the company’s principal operating companies, including

performance measures and targets. These plans

then become the basis of the annual incentive plans

below the level of the principal operating companies,

particularly with regard to the performance measures

used and the relationship between the relevant

business unit operating plans, and the incentive targets.

We will continue to review the annual incentive plans

each year and to revise the performance measures,

targets and individual incentive opportunities in light of

current conditions. We will continue to disclose details

of the operation of the annual incentive plans in the

report on directors’ remuneration each year.

Annual incentive payments do not form part of

pensionable earnings.

Performance measures

The financial performance measures relate to the

company’s main drivers of business performance at

both the corporate, operating company and business

unit level. Performance is measured separately for each

item. For each performance measure, the committee

establishes threshold, target and maximum levels of

performance for different levels of payout.

A proportion (which for 2012 may be up to 30%) of

the total annual incentive opportunity for the executive

directors and other members of the Pearson

Management Committee is based on performance

against personal objectives as agreed with the chief

executive (or, in the case of the chief executive, the

chairman). These comprise functional, operational,

strategic and non-financial objectives relevant to the

executives’ specific areas of responsibility and inter alia

may include objectives relating to environmental,

social and governance issues.

For 2012, the principal financial performance

measures are: sales; operating profit (for the operating

companies) and growth in underlying earnings per

share for continuing operations at constant exchange

rates (for Pearson plc); average working capital as a

ratio to sales; and operating cash flow. The selection

and weighting of performance measures takes into

account the strategic objectives and the business

priorities relevant to each operating company and

to Pearson overall each year.

Incentive opportunities

In each year’s report on directors’ remuneration,

we describe any changes to target and maximum

incentive opportunities for the chief executive and

the other executive directors for the year ahead.

For 2012, there are no changes to the target and

maximum annual incentive opportunities for the

chief executive which remain at 100% and 180%

respectively, of base salary (as in 2011).

For the other members of the Pearson Management

Committee, individual incentive opportunities take into

account their membership of that committee and the

contribution of their respective businesses or role to

Pearson’s overall financial goals. In the case of the

executive directors, the target individual incentive

opportunity for 2012 is in a range from 80% to 87.5%

of base salary (as in 2011). The maximum opportunity

remains at twice target (as in 2011).

The annual incentive plans are discretionary and the

committee reserves the right to make adjustments to

payouts up or down if it believes exceptional factors

warrant doing so.

The committee may also award individual discretionary

incentive payments although no such payments were

awarded in respect of 2011.

For 2011, total annual incentive opportunities were

based on Pearson plc and operating company financial

performance and performance against personal

objectives as follows:

Name Pearson plc

Operating company/

companies Personal

objectives

Marjorie Scardino 90% – 10%

Will Ethridge 30% 60%

Pearson North America

10%

Rona Fairhead 30% 40%

Professional Assessment &

Training

10%

FT Publishing

20%

Robin Freestone 80% – 20%

John Makinson 30% 60%

Penguin Group

10%


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2011 performance

Performance in 2011 against the relevant incentive plans was as follows:

Performance against incentive plan

Incentive plan Performance measure Below

threshold

Between threshold and target

Between target and maximum

Above maximum

Pearson plc Sales

Underlying growth in adjusted earnings

per share at constant exchange rates

Average working capital to sales ratio

Operating cash flow

Sales Pearson Education

North America Operating profit


Operating cash flow

FT Publishing Sales

Operating profit

Operating cash flow

Professional Sales

Assessment & Operating profit

Training Operating cash flow

Penguin Group Sales

Operating profit

Operating margin


Operating cash flow

Details of actual payouts for 2011 which range from 52% to 76% of maximum (89% to 100% in 2010) are set out in

table 1 on page 82.

Bonus share matching

In 2008, shareholders approved the renewal of the

annual bonus share matching plan first approved by

shareholders in 1998.

Invested and matching shares

The plan permits executive directors and senior

executives around the company to invest up to 50%

of any after-tax annual bonus in Pearson shares.

If the participant’s invested shares are held, they are

matched subject to earnings per share growth over the

three-year performance period on a gross basis i.e. the

maximum number of matching shares is equal to the

number of shares that could have been acquired with

the amount of the pre-tax annual bonus taken in

invested shares.

50% of the maximum matching award is released if the

company’s adjusted earnings per share increase in real

terms by 3% per annum compound over the three-

year performance period. 100% of the maximum

matching award is released if the company’s adjusted

earnings per share increase in real terms by 5% per

annum compound over the same period.

For real growth in adjusted earnings per share of

between 3% and 5% per annum compound, the rate at

which the matching award is released is calculated

according to a straight-line sliding scale.



Real earnings per share growth per annum

Proportion of maximum matching award released

Less than 3% 0%

3% 50%

Between 3% and 5% Sliding scale between 50%

and 100%

5% or more 100%

Performance condition

Earnings per share growth is calculated using the point-

to-point method. This method compares the adjusted

earnings per share in the company’s accounts for the

financial year ended prior to the grant date with the

adjusted earnings per share for the financial year ending

three years later and calculates the implicit compound

annual growth rate over the period.

Real growth is calculated by reference to the

UK Government’s Retail Prices Index (All Items).

Dividend shares

Where matching shares vest in accordance with

the plan, participants also receive additional shares

representing the gross value of dividends that would

have been paid on the matching shares during the

performance period and reinvested.

Outstanding awards

Details of awards made, outstanding, held or released under the annual bonus share matching plan are as follows

(subject to audit):

Date of award Share price on date of award Vesting Status of award

20 April 2011 1,129.0p 20 April 2014 Outstanding subject to 2010 to 2013 performance

21 April 2010 1,024.1p 21 April 2013 Outstanding subject to 2009 to 2012 performance

16 April 2009 670.0p 16 April 2012 Performance condition for release of maximum matching award

met. Real compound annual growth in earnings per share for

2008 to 2011 of 10.1% against target of 5%. Shares held pending

release on 16 April 2012

4 June 2008 670.7p 4 June 2011 Target met as reported in report on directors’ remuneration for

2010. Shares released on 4 June 2011

22 May 2007

(See note 1)

899.9p 100% on

22 May 2012

Performance condition for release of 100% of matching award

met. Real compound annual growth in earnings per share for

2006 to 2011 of 11.2% against target of 3%. Shares held pending

release on 22 May 2012

12 April 2006

(See note 1)

776.2p 100% on

12 April 2011

Target met as reported in report on directors’ remuneration for

2010. Shares released on 12 April 2011

Note For awards made prior to 2008, the annual bonus share matching plan operated on the basis of a 50% match after three years and 100% match after five years, subject to the earnings per share growth targets being met over the relevant performance periods.

Marjorie Scardino, Will Ethridge, Rona Fairhead and Robin Freestone hold or held awards under this plan in 2011.

Details are set out in table 4 on pages 85 to 87 and itemised as a or a*.


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Long-term incentives

At the AGM in 2011, shareholders approved the

renewal of the long-term incentive plan.

The plan enables the company to recruit and retain the

most able managers worldwide and to ensure their

long-term incentives encourage outstanding

performance and are competitive in the markets in

which we operate.

Under the plan, executive directors, senior executives

and other managers can participate in this plan which

can deliver restricted stock and/or stock options.

Approximately 6% of the company’s employees

currently hold awards under this plan.

The aim is to give the committee a range of tools with

which to link corporate performance to management’s

long-term reward in a flexible way. It is not the

committee’s intention to grant stock options in 2012

or for the foreseeable future.

Restricted stock granted to executive directors vests

only if stretching corporate performance targets over

a specified period have been met. Awards vest on a

sliding scale based on performance over the period.

There is no retesting.

Performance measures

The committee determines the performance measures

and targets governing an award of restricted stock

prior to grant.

The performance measures that will apply for the

executive directors for awards in 2012 and subsequent

years will continue to be focused on delivering and

improving returns to shareholders. These measures,

which have applied since 2004, are relative total

shareholder return (TSR), return on invested capital

(ROIC) and earnings per share (EPS) growth.

Total shareholder return is the return to shareholders

from any growth in Pearson’s share price and

reinvested dividends over the performance period.

For long-term incentive awards, TSR is measured

relative to the constituents of the FTSE World Media

Index over a three-year period. Companies that

drop out of the index are normally excluded i.e.

only companies in the index for the entire period

are counted.

Share price is averaged over 20 days at the start and

end of the performance period, commencing on the

date of Pearson’s results announcement in the year of

grant and the year of vesting. Dividends are treated as

reinvested on the ex-dividend date, in line with the

Datastream methodology.

The vesting of shares based on relative TSR is subject

to the committee satisfying itself that the recorded

TSR is a genuine reflection of the underlying financial

performance of the business.

The committee chose TSR relative to the constituents

of the FTSE World Media Index because, in line with

many of our shareholders, it felt that part of executive

directors’ rewards should be linked to performance

relative to the company’s peers.

Return on invested capital is adjusted operating profit

less cash tax expressed as a percentage of gross

invested capital (net operating assets plus gross

goodwill).

We chose ROIC because, over the past few years,

the transformation of Pearson has significantly

increased the capital invested in the business

(mostly in the form of goodwill associated with

acquisitions) and required substantial cash investment

to integrate those acquisitions.

Adjusted earnings per share is calculated by dividing the

adjusted earnings attributable to equity shareholders

of the company by the weighted average number of

ordinary shares in issue during the year, excluding any

ordinary shares purchased by the company and held

in trust (see note 8 of the financial statements for a

detailed description of adjusted earnings per share).

Since 2008, EPS growth has been calculated using the

point-to-point method. This method compares the

adjusted EPS in the company’s accounts for the

financial year ended prior to the grant date with the

adjusted EPS for the financial year ending three years

later and calculates the implicit compound annual

growth rate over the period.

We chose EPS growth because strong bottom-line

growth is imperative if we are to improve our TSR

and our ROIC.

Pearson’s reported financial results for the relevant

periods are used to measure performance.



The committee has discretion to make adjustments

taking into account exceptional factors that distort

underlying business performance. In exercising such

discretion, the committee is guided by the principle

of aligning shareholder and management interests.

No such adjustments were made for performance

periods ending in 2011.

Restricted stock may be granted without performance

conditions to satisfy recruitment and retention

objectives. Restricted stock awards that are not subject

to performance conditions will not be granted to any

of the current executive directors.

Performance targets

We will set targets for the 2012 awards that are

consistent with the company’s strategic objectives

over the period to 2014 and that are no less stretching

than in previous years. Full details of the performance

targets for 2012 will be set out in the report on

directors’ remuneration for 2012.

Value of awards

Our approach to the level of individual awards takes

into account a number of factors.

First, we take into account the face value of individual

awards at the time of grant assuming that the

performance targets are met in full. Secondly, we take

into account the assessments by our independent

advisers of market practice for comparable companies

and of directors’ total remuneration relative to the

market. And thirdly, we take into account individual

roles and responsibilities, and company and

individual performance.

For 2012, we reviewed award levels taking into

account the value of individual awards and market

practice and, as a consequence, reduced the number

of shares awarded to executive directors and other

members of the Pearson Management Committee

compared to practice in recent years.

Future awards

For awards beyond 2012, the committee may use the

same performance measures and targets, or apply

different ones that are consistent with the company’s

objectives and which it considers to be similarly

demanding. The committee also has the flexibility to

vary individual award levels.

The committee will consult with shareholders before

making any significant changes to its approach to,

or policy on, performance measures or targets or

the range of award levels established by awards in

recent years.

Dividends

Where shares vest, in accordance with the plan,

participants also receive additional shares representing

the gross value of dividends that would have been

paid on these shares during the performance period

and reinvested.

Retention period

We encourage executives and managers to build up

a long-term holding of shares so as to demonstrate

their commitment to the company.

To achieve this, for awards of restricted stock

that are subject to performance conditions over

a three-year period, a percentage of the award

(normally 75%) vests at the end of the three-year

period. The remainder of the award (normally 25%)

only vests if the participant retains the after-tax

number of shares that vest at year three for a

further two years.

All of the executive directors hold awards under the

long-term incentive plan. Details are set out in table 4

on pages 85 to 87 and itemised as b or b*.


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⅓ based on relative total shareholder return

75% of vested shares released after three years

25% released after further two years

CONDITIONAL SHARE AWARD

AWARDS VEST AFTER THREE YEARS ON A

SLIDING SCALE BASED ON PERFORMANCE

⅓ based on return on invested capital

⅓ based on earnings per share growth

Outstanding awards

Details of awards made, outstanding, vested and held or released under the long-term incentive plan are as follows

(subject to audit):

Date of award

Share price on date of award

Vesting date

Performance measures (award split equally across three measures)

Performance period

Payout at threshold

Payout at maximum

Actual performance

% of award vested

Status of award

03/05/11 1,149.0p 03/05/14 Relative TSR 2011 to

2014

30% at

median

100% at

upper

quartile

– – Outstanding

ROIC 2013 25% for

ROIC of

9.0%

100% for

ROIC of

10.5%

– – Outstanding

EPS growth 2013

compared

to 2010

30% for EPS

growth of

6.0%

100% For

EPS growth

of 12.0%

– – Outstanding

03/03/10 962.0p 03/03/13 Relative TSR 2010 to

2013

30% at

median

100% at

upper

quartile

– – Outstanding

ROIC 2012 25% for

ROIC of

8.5%

100% for

ROIC of

10.5%

– – Outstanding

EPS growth 2012

compared

to 2009

30% for EPS

growth of

6.0%

100% For

EPS growth

of 12.0%

– – Outstanding

03/03/09 654.0p 03/03/12 Relative TSR 2009 to

2012

30% at

median

100% at

upper

quartile

– – Outstanding

ROIC 2011 25% for

ROIC of

8.5%

100% for

ROIC of

10.5%

9.1% 47.5% Vested and

remain held

pending release

EPS growth 2011

compared

to 2008

30% for EPS

growth of

6.0%

100% for

EPS growth

of 12.0%

14.4% 100% Vested and

remain held

pending release



Date of award

Share price on date of award

Vesting date

Performance measures (award split equally across three measures)

Performance period

Payout at threshold

Payout at maximum

Actual performance

% of award vested

Status of award

04/03/08 649.5p 04/03/11 Relative TSR 2008 to

2011

30% at

median

100% at

upper

quartile

93.3rd

percentile

100%

ROIC 2010 25% for

ROIC of

8.5%

100% for

ROIC of

10.5%

10.3% 92.5%

EPS growth 2010

compared

to 2007

30% for EPS

growth of

6.0%

100% for

EPS growth

of 12.0%

18.4% 100%

97.5% of

shares vested.

Three-quarters

released on

05 April 2011.

If after tax

number of shares

are retained for a

further two years,

the remaining

quarter will

be released on

4 March 2013.

All-employee share plans

Executive directors can participate in the company’s

all-employee share plans on the same terms as

other employees.

These plans comprise savings-related share acquisition

programmes in the UK and the US.

These plans operate within specific tax legislation

(including a requirement to finance acquisition of

shares using the proceeds of a monthly savings

contract) and the acquisition of shares under these

plans is not subject to the satisfaction of a

performance target.

Dilution and use of equity

We can use existing shares bought in the market,

treasury shares or newly-issued shares to satisfy

awards under the company’s various stock plans.

For restricted stock awards under the long-term

incentive plan and matching share awards under the

annual bonus share matching plan, we would normally

expect to use existing shares.

There are limits on the amount of new-issue equity we

can use. In any rolling ten-year period, no more than

10% of Pearson equity will be issued, or be capable

of being issued, under all Pearson’s share plans, and

no more than 5% of Pearson equity will be issued,

or be capable of being issued, under executive or

discretionary plans.

At 31 December 2011, stock awards to be satisfied

by new-issue equity granted in the last ten years under

all Pearson share plans amounted to 1.7% of the

company’s issued share capital. No stock awards

granted in the last ten years under executive

or discretionary share plans will be satisfied by new-

issue equity.

In addition, for existing shares no more than 5% of

Pearson equity may be held in trust at any time.

Against this limit, shares held in trust at 31 December

2011 amounted to 1.8% of the company’s issued

share capital.

The headroom available for all Pearson plans,

executive or discretionary plans and shares held in

trust is as follows:

Headroom 2011 2010 2009

All Pearson plans 8.3% 7.6% 6.4%

Executive or

discretionary plans 5.0% 4.1% 3.0%

Shares held in trust 3.2% 3.3% 3.3%

Shareholding of executive directors

The committee expects executive directors to build

up a substantial shareholding in the company in line

with the policy of encouraging widespread employee

ownership and operates formal shareholding guidelines

for executive directors. The target holding is 2 times

salary for the chief executive and 1.25 times salary

for the other executive directors consistent with

median practice in FTSE 100 companies that operate

such arrangements.


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Shares that count towards these guidelines include any

shares held unencumbered by the executive, their

spouse and/or dependent children (as set out in table

3 on page 84) plus any shares vested but held pending

release under a restricted share plan (as marked as * in

table 4 on pages 85 to 87).

Executive directors will have five years from the date of

appointment to reach the guideline.

The current value of the executive directors’ holdings

based on the middle market value of Pearson shares

of 1,251.0p on 24 February 2012 (which is the latest

practicable date before the results announcement)

against the base salaries in 2011 comfortably exceeded

these guidelines:

Own shares Number of

sharesValue

(x salary)Guideline(x salary)

Guideline met

Marjorie Scardino 1,809,655 22.8 2.00

Will Ethridge 560,407 10.8 1.25

Rona Fairhead 554,241 13.1 1.25

Robin Freestone 442,657 11.1 1.25

John Makinson 562,885 12.8 1.25

Service agreements

In accordance with long established policy, all

continuing executive directors have rolling service

agreements under which, other than by termination

in accordance with the terms of these agreements,

employment continues until retirement.

The committee reviewed the policy on executive

service agreements in 2008 and again in 2010.

Our policy is that future executive director agreements

should provide that the company may terminate these

agreements by giving no more than 12 months’ notice.

As an alternative, the company may at its discretion

pay in lieu of that notice. Payment in lieu of notice

may be made in instalments and may be subject

to mitigation.

We will keep the application of the policy on executive

service agreements, including provisions for payment in

lieu of notice, under review, particularly with regard to

the arrangements for any new executive directors.

In the case of the longer serving directors with

legacy agreements, the compensation payable in

circumstances where the company terminates the

agreements without notice or cause takes the form

of liquidated damages.

There are no special provisions for notice, pay in

lieu of notice or liquidated damages in the event of

termination of employment in the event of a change

of control of Pearson.

On termination of employment, executive directors’

entitlements to any vested or unvested awards under

Pearson’s discretionary share plans are treated in

accordance with the terms of the relevant plan.



We summarise the service agreements that applied during 2011 and that continue to apply for 2012 as follows:

Name Date of agreement Notice periods Compensation on termination by the company without notice or cause

Glen Moreno 29 July 2005 12 months from the director;

12 months from the company

100% of annual fees at the date

of termination

Marjorie Scardino 27 February 2004 Six months from the director;


100% of annual salary at the date of

termination, the annual cost of pension

and all other benefits and 50% of

potential annual incentive

Will Ethridge 26 February 2009 Six months from the director;




and all other benefits and target

annual incentive

Rona Fairhead 24 January 2003 Six months from the director;






Robin Freestone 5 June 2006 Six months from the director;


No contractual provisions

John Makinson 24 January 2003 Six months from the director;






Retirement benefits

We describe the retirement benefits for each of the

executive directors. Details of directors’ pension

arrangements are set out in table 2 on page 83 of

this report.

Executive directors participate in the pension

arrangements set up for Pearson employees.

Marjorie Scardino, Will Ethridge, John Makinson,

Rona Fairhead and Robin Freestone will also have

other retirement arrangements because of the cap

on the amount of benefits that can be provided from

the pension arrangements in the US and the UK.

The differences in the arrangements for the current

executive directors reflect the different arrangements

in the UK and the US and the changes in pension

arrangements generally over the periods of

their employment.

Executive directors are entitled to life insurance cover

while in employment, and to a pension in the event

of ill-health or disability. A pension for their spouse

and/or dependants is also available on death.

In the US, the defined benefit arrangement is the

Pearson Inc. Pension Plan. This plan provides a

lump sum convertible to an annuity on retirement.

The lump sum accrued at 6% of capped

compensation until 31 December 2001 when

further benefit accruals ceased for most employees.

Employees who satisfied criteria of age and service at

that time continued to accrue benefits under the plan.

Will Ethridge is included in this group and continues

to accrue benefits under this plan. Marjorie Scardino

is not and her benefit accruals under this plan ceased

at the end of 2001.

The defined contribution arrangement in the US is a

401(k) plan. At retirement, the account balances will

be used to provide benefits. In the event of death

before retirement, the account balances will be used

to provide benefits for designated beneficiaries.


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In the UK, the pension plan is the Pearson Group

Pension Plan and executive directors participate in

either the Final Pay or the Money Purchase 2003

section. Normal retirement age is 62, but, subject to

company consent, retirement is currently possible from

age 55. In the Final Pay section, the accrued pension is

reduced on retirement prior to age 60. Pensions in

payment are guaranteed to increase each year at 5%

or the rise in inflation each year, if lower. Pensions for

a member’s spouse, dependant children and/or

nominated financial dependant are payable in the event

of death. In the Money Purchase 2003 section the

account balances are used to provide benefits at

retirement. In the event of death before retirement

pensions for a member’s spouse, dependant children

and/or nominated financial dependant are payable.

Members of the Pearson Group Pension Plan who

joined after May 1989 are subject to an upper limit

of earnings that can be used for pension purposes,

known as the earnings cap. This limit, £108,600 as at

6 April 2006, was abolished by the Finance Act 2004.

However the Pearson Group Pension Plan has retained

its own ‘cap’, which will increase annually in line with

the UK Government’s Index of Retail Prices (All Items).

The cap was £129,600 as at 6 April 2011.

As a result of the UK Government’s A-Day changes

effective from April 2006, UK executive directors and

other members of the Pearson Group Pension Plan

who are, or become, affected by the lifetime allowance

are provided with a cash supplement as an alternative

to further accrual of pension benefits on a basis that is

broadly cost neutral to the company.

Effective from 6 April 2011, than annual allowance (i.e.

the maximum amount of pension saving that benefits

from tax relief each year) reduced from £255,000 to

£50,000. Effective 6 April 2011, the lifetime allowance

(i.e. the maximum amount of pension and/or lump

sum that can benefit from tax relief) reduced from

£1.8million to £1.5million.

Marjorie Scardino

Marjorie Scardino participates in the Pearson Inc.

Pension Plan and the approved 401(k) plan. Until 2010,

additional benefits were provided through an unfunded

unapproved defined contribution plan.

Since 2010, additional pension benefits are provided

through a taxable and non-pensionable cash

supplement in place of the unfunded plan, a funded

defined contribution plan approved by HM Revenue

and Customs as a corresponding plan, and amounts

in the legacy unfunded plan. In aggregate, the cash

supplement and contributions to the funded plan

are based on a percentage of salary and a fixed cash

amount index-linked to inflation.

The notional cash balance of the legacy unfunded plan

increases annually by a specified notional interest rate.

The unfunded plan also provides the opportunity to

convert a proportion of this notional cash account

into a notional share account reflecting the value of a

number of Pearson ordinary shares. The number of

shares in the notional share account is determined by

reference to the market value of Pearson shares at the

date of conversion.

Will Ethridge

Will Ethridge is a member of the Pearson Inc. Pension

Plan and the approved 401(k) plan. He also participates

in an unfunded, non-qualified Supplemental Executive

Retirement Plan (SERP) that provides an annual accrual

of 2% of final average earnings, less benefits accrued in

the Pearson Inc. Pension Plan and US Social Security.

Additional defined contribution benefits are provided

through a funded, non-qualified Excess Plan.

Rona Fairhead

Rona Fairhead is a member of the Pearson Group

Pension Plan. Her pension accrual rate is 1/30th of

pensionable salary per annum, restricted to the plan

earnings cap.

Until April 2006, the company also contributed to a

Funded Unapproved Retirement Benefits Scheme

(FURBS) on her behalf. Since April 2006, she has

received a taxable and non-pensionable cash

supplement in replacement of the FURBS.



Robin Freestone

Robin Freestone is a member of the Money Purchase

2003 section of the Pearson Group Pension Plan.

Company contributions are 16% of pensionable salary

per annum, restricted to the plan earnings cap.

Until April 2006, the company also contributed to a

Funded Unapproved Retirement Benefits Scheme

(FURBS) on his behalf. Since April 2006, he has

received a taxable and non-pensionable cash

supplement in replacement of the FURBS.

John Makinson

John Makinson is a member of the Pearson Group

Pension Plan under which his pensionable salary is

restricted to the plan earnings cap. The company

ceased contributions on 31 December 2001 to

his FURBS arrangement. During 2002 it set up an

Unfunded Unapproved Retirement Benefits Scheme

(UURBS) for him. The UURBS tops up the pension

payable from the Pearson Group Pension Plan and

the closed FURBS to target a pension of two-thirds

of a revalued base salary on retirement at age 62.

The revalued base salary is defined as £450,000

effective at 1 June 2002, increased at 1 January

each year by reference to the increase in the UK

Government’s Index of Retail Prices (All Items).

In the event of his death a pension from the Pearson

Group Pension Plan, the FURBS and the UURBS will be

paid to his spouse or nominated financial dependant.

Early retirement is currently possible from age 55,

with company consent.

The pension is reduced to reflect the shorter service,

and before age 60, further reduced for early payment.

Executive directors’ non-executive directorships

The committee’s policy is that executive directors may,

by agreement with the board, serve as non-executives

of other companies and retain any fees payable for

their services.

The following executive directors served as non-

executive directors elsewhere and received fees or

other benefits for the period covered by this report

as follows:

Company Fees/benefits

Marjorie Scardino Nokia Corporation €150,000

MacArthur Foundation $28,000

Rona Fairhead HSBC Holdings plc £200,000

Other executive directors served as non-executive

directors elsewhere but did not receive fees.

Chairman’s remuneration

The committee’s policy is that the chairman’s pay

should be set at a level that is competitive with those

of chairmen in similar positions in comparable

companies. He is not entitled to any annual or long-

term incentive, retirement or other benefits.

The committee reviewed the chairman’s remuneration

in 2010. In the light of this review, the board approved

the committee’s recommendation that the chairman’s

remuneration be increased to £500,000 per year with

effect from 1 April 2011. The next review will take

place in 2014.


Fees for non-executive directors are determined by

the full board having regard to market practice and

within the restrictions contained in the company’s

Articles of Association. Non-executive directors

receive no other pay or benefits (other than

reimbursement for expenses incurred in connection

with their directorship of the company) and do

not participate in the company’s equity-based

incentive plans.

With effect from 1 July 2010, the structure and fees

are as follows:

Fees payable from 1 July

2010

Non-executive director £65,000

Chairmanship of audit committee £25,000

Chairmanship of remuneration committee £20,000

Membership of audit committee £10,000

Membership of remuneration committee £5,000

Senior independent director £20,000

A minimum of 25% of the basic fee is paid in

Pearson shares that the non-executive directors have

committed to retain for the period of their directorships.

Non-executive directors serve Pearson under letters

of appointment and do not have service contracts.

There is no entitlement to compensation on the

termination of their directorships.


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Total shareholder return performance

Below we set out Pearson’s total shareholder return

on three bases. Pearson is a constituent of all the

indices shown.

First, we set out Pearson’s total shareholder return

performance relative to the FTSE All-Share index on an

annual basis over the five-year period 2006 to 2011.

We have chosen this index, and used it consistently in

each report on directors’ remuneration since 2002,

on the basis that it is a recognisable reference point

and an appropriate comparator for the majority of

our investors.

200

175

150

125

100

75

FTSE All-Share

0706 09 11100850

Pearson

TOTAL SHAREHOLDER RETURN

Secondly, to illustrate performance against our sector,

we show Pearson’s total shareholder return relative to

the FTSE Media index over the same five-year period.

200

175

150

125

100

75

FTSE Media

0706 09 11100850

Pearson


And thirdly, we show Pearson’s total shareholder

return relative to the FTSE All-Share and Media indices

on a monthly basis over 2011, the period to which this

report relates.

130

120

110

100

Pearson FTSE All-Share

MarDec Sep DecJun

FTSE Media

90

80




Items subject to audit

The following tables form the auditable part of the remuneration report, except table 3 which is not subject

to audit.

Table 1: Remuneration of the directors

Excluding contributions to pension funds and related benefits set out in table 2, directors’ remuneration was

as follows:

2011 2010

All figures in £000s Salaries/feesAnnual

incentive Allowances Benefits Total Total

Chairman

Glen Moreno 488 – – – 488 450

Executive directors

Marjorie Scardino 993 1,353 73 36 2,455 2,662

Will Ethridge 652 738 – – 1,390 1,671

Rona Fairhead 529 440 12 18 999 1,373

Robin Freestone 500 580 7 7 1,094 1,158

John Makinson 549 641 224 3 1,417 1,575


David Arculus 95 – – – 95 90

Patrick Cescau 100 – – – 100 86

Susan Fuhrman 75 – – – 75 73

Ken Hydon 95 – – – 95 90

Joshua Lewis (appointed 1 March 2011) 63 – – – 63 –

Total 4,139 3,752 316 64 8,271 9,228

Total 2010 (including former directors) 3,989 4,928 321 48 – 9,286

Note 1 Allowances for Marjorie Scardino include £47,120 in respect of housing costs and a US payroll supplement of £12,551. John Makinson is entitled to a location and market premium in relation to the management of the business of the Penguin Group in the US and received £210,464 for 2011.

Note 2 Benefits include company car, car allowance and UK healthcare premiums. US health and welfare benefits for Marjorie Scardino and Will Ethridge are self-insured and the company cost, after employee contributions, is tax free to employees. For Marjorie Scardino, benefits include £33,310 for pension planning and financial advice. Marjorie Scardino, Rona Fairhead and John Makinson have the use of a chauffeur.

Note 3 No amounts as compensation for loss of office and no expense allowances chargeable to UK income tax were paid during the year.


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Table 2: Directors’ pensions and other pension-related items

Directors’ pensions

Age at 31 Dec 11

Accrued pension at 31 Dec 11

£0001

Increase in accrued

pension over the

period £0002

Transfer value at

31 Dec 10 £0003

Transfer value at

31 Dec 11 £0004

Increase in transfer

value over the

period £0005

Increase/(decrease) in accrued

pension over the

period £0006

Transfer value

of the increase/

(decrease) in accrued pension at 31 Dec 11

£0005/6

Other pension

costs to the company over the

period £0007

Other allowances

in lieu of pension

£0008

Other pension related

benefit costs £0009

Marjorie

Scardino 64 4.7 0.1 47.3 49.5 2.2 (0.1) (1.1) 7.2 644.5 56.7

Will

Ethridge 59 194.4 34.4 1,418.4 2,039.3 620.9 26.4 276.9 45.6 – 1.7

Rona

Fairhead 50 42.2 4.1 489.2 579.3 83.9 2.2 24.0 – 121.2 16.4

Robin

Freestone 53 – – – – – – – 19.8 124.5 5.5

John

Makinson 57 308.0 30.6 4,767.0 5,906.5 1,133.3 16.7 314.1 – – 11.9

Note 1 The accrued pension at 31 December 2011 is the deferred pension to which the member would be entitled on ceasing pensionable service on 31 December 2011. For Marjorie Scardino this relates to a fixed pension from the US plan. For Will Ethridge the pension quoted in this column relates to his pension from the US Plan and the US SERP. For Rona Fairhead it relates to the pension payable from the UK Plan. For John Makinson it relates to the pension from the UK Plan, the FURBS and the UURBS in aggregate. Robin Freestone does not accrue defined benefits.

Note 2 This is the change in accrued pension over the year compared with the accrued pension at the end of the previous year.

Note 3 This is the transfer value quoted at the end of the previous year.

Note 4 The UK transfer values at 31 December 2011 are calculated using the assumptions for cash equivalents payable from the UK Plan and are based on the accrued pension at that date. The only change in the transfer value methodology was to make an allowance for the fact that the future increases to deferred pensions will be based on the increase in the CPI as opposed to RPI. For the US SERP, transfer values are calculated using a discount rate equivalent to current US long term bond yields. The US Plan is a lump sum plan and the accrued balance is included where applicable.

Note 5 Less directors’ contributions.

Note 6 Net of UK inflation (where inflation is the increase in CPI to the previous September, subject to a minimum of 0% pa and a maximum of 5% pa). The increase in the CPI in the year to September 2011 was 5.2%. As this exceeded 5%, the inflation figure used in these calculations was 5%.

Note 7 This column comprises contributions to defined contribution arrangements for UK benefits. For US benefits, it includes company contributions to funded defined contribution plans.

Note 8 This column represents the cash allowances paid in lieu of the previous unfunded defined contribution plan for Marjorie Scardino and of the previous FURBS arrangements for Rona Fairhead and Robin Freestone. John Makinson’s deferred FURBS entitlement is referred to in note 1 above.

Note 9 This column comprises life cover and long-term disability insurance not covered by the retirement plans.



Table 3: Interests of directors

Ordinary shares

at 1 Jan 11

Ordinary shares

at 31 Dec 11

Glen Moreno 150,000 150,000

Marjorie Scardino 1,107,118 1,346,618

David Arculus 14,053 14,798

Patrick Cescau 6,282 7,117

Will Ethridge 333,395 405,295

Rona Fairhead 342,669 425,023

Robin Freestone 193,954 308,731

Susan Fuhrman 11,363 12,927

Ken Hydon 10,715 14,028

John Makinson 551,039 438,667

Joshua Lewis (appointed 1 March 2011) 0 3,891

Note 1 Ordinary shares include both ordinary shares listed on the London Stock Exchange and American Depositary Receipts (ADRs) listed on the New York Stock Exchange. The figures include both shares and ADRs acquired by individuals investing part of their own after-tax annual bonus in Pearson shares under the annual bonus share matching plan.

Note 2 From 2004, Marjorie Scardino is also deemed to be interested in a further number of shares under her unfunded pension arrangement described in this report, which provides the opportunity to convert a proportion of her notional cash account into a notional share account reflecting the value of a number of Pearson shares.

Note 3 The register of directors’ interests (which is open to inspection during normal office hours) contains full details of directors’ shareholdings and options to subscribe for shares. The market price on 31 December 2011 was 1,210.0p per share and the range during the year was 983.0p to 1,222.0p.

Note 4 At 31 December 2011, Patrick Cescau held 168,000 Pearson bonds.

Note 5 There were no movements in ordinary shares between 1 January 2012 and a month prior to the sign-off of this report.

Note 6 Ordinary shares do not include any shares vested but held pending release under a restricted share plan.


FIN

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PA

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Table 4: Movements in directors’ interests in restricted shares

Restricted shares designated as: a annual bonus share matching plan; b long-term incentive plan; * where shares at

31 December 2011 have vested and are held pending release; and ** where dividend-equivalent shares were added

to the released shares.

Date of award 1 Jan 11 Awarded Released Lapsed 31 Dec 11

Market value at date

of award

Earliest release

dateDate of release


of release

Marjorie

Scardino

a* 22/5/07 60,287 60,287 899.9p 22/5/10

a* 4/6/08 99,977 99,977 0 670.7p 4/6/11 6/6/11 1,143.0p

a 21/4/10 63,497 63,497 1,024.1p 21/4/13

a 20/4/11 0 71,446 71,446 1,129.0p 20/4/14

a** 6/6/11 0 14,697 14,697 0 1,143.0p 6/6/11 6/6/11 1,143.0p

b* 13/10/06 93,750 93,750 0 767.5p 13/10/09 13/10/11 1,162.0p

b* 30/7/07 84,000 84,000 778.0p 2/3/10

b* 4/3/08 390,000 292,500 97,500 649.5p 4/3/11 5/4/11 1,146.0p

b* 3/3/09 300,000 78,750 221,250 654.0p 3/3/12

b 3/3/09 150,000 150,000 654.0p 3/3/12

b 3/3/10 400,000 400,000 962.0p 3/3/13

b 3/5/11 0 400,000 400,000 1,149.0p 3/5/14

b** 5/4/11 0 45,630 45,630 0 1,146.0p 5/4/11 5/4/11 1,146.0p

b** 13/10/11 0 23,344 23,344 0 1,162.0p 13/10/11 13/10/11 1,162.0p

Total 1,641,511 555,117 569,898 78,750 1,547,980

Will Ethridge

a* 22/5/07 2,508 2,508 899.9p 22/5/12

a 16/4/09 112,515 112,515 670.0p 16/4/12

a 21/4/10 7,880 7,880 1,024.1p 21/4/13

a 20/4/11 0 4,517 4,517 1,131.0p 20/4/14

b* 13/10/06 41,667 41,667 0 767.5p 13/10/09 13/10/11 1,162.0p

b* 30/7/07 30,000 30,000 778.0p 2/3/10

b* 4/3/08 146,250 109,688 36,562 649.5p 4/3/11 5/4/11 1,146.0p

b* 3/3/09 116,667 30,625 86,042 654.0p 3/3/12

b 3/3/09 58,333 58,333 654.0p 3/3/12

b 3/3/10 150,000 150,000 962.0p 3/3/13

b 3/5/11 0 150,000 150,000 1,149.0p 3/5/14

b** 5/4/11 0 17,112 17,112 0 1,146.0p 5/4/11 5/4/11 1,146.0p

b** 13/10/11 0 10,376 10,376 0 1,162.0p 13/10/11 13/10/11 1,162.0p

Total 665,820 182,005 178,843 30,625 638,357



Table 4: Movements in directors’ interests in restricted shares continued






of award

Earliest release

dateDate of release


of release

Rona Fairhead

a* 12/4/06 16,101 16,101 0 776.2p 12/4/11 12/4/11 1,087.0p

a** 12/4/11 0 272 272 0 1,087.0p 12/4/11 12/4/11 1,087.0p

b* 13/10/06 29,167 29,167 0 767.5p 13/10/09 13/10/11 1,162.0p

b* 30/7/07 25,000 25,000 778.0p 2/3/10

b* 4/3/08 121,875 91,407 30,468 649.5p 4/3/11 5/4/11 1,146.0p

b* 3/3/09 100,000 26,250 73,750 654.0p 3/3/12

b 3/3/09 50,000 50,000 654.0p 3/3/12

b 3/3/10 125,000 125,000 962.0p 3/3/13

b 3/5/11 0 165,000 165,000 1,149.0p 3/5/14

b** 5/4/11 0 14,260 14,260 0 1,146.0p 5/4/11 5/4/11 1,146.0p

b** 13/10/11 0 7,263 7,263 0 1,162.0p 13/10/11 13/10/11 1,162.0p

Total 467,143 186,795 158,470 26,250 469,218

Robin

Freestone

a* 12/4/06 3,435 3,435 0 776.2p 12/4/11 12/4/11 1,087.0p

a* 22/5/07 4,708 4,708 899.9p 22/5/12

a* 4/6/08 37,906 37,906 0 670.7p 4/6/11 6/6/11 1,143.0p

a 16/4/09 35,446 35,446 670.0p 16/4/12

a 21/4/10 31,114 31,114 1,024.1p 21/4/13

a 20/4/11 0 29,049 29,049 1,129.0p 20/4/14

a** 12/4/11 0 58 58 0 1,087.0p 12/4/11 12/4/11 1,087.0p

a** 6/6/11 0 5,573 5,573 0 1,143.0p 6/6/11 6/6/11 1,143.0p

b* 13/10/06 26,042 26,042 0 767.5p 13/10/09 13/10/11 1,162.0p

b* 30/7/07 25,000 25,000 778.0p 2/3/10

b* 4/3/08 121,875 91,407 30,468 649.5p 4/3/11 5/4/11 1,146.0p

b* 3/3/09 100,000 26,250 73,750 654.0p 3/3/12

b 3/3/09 50,000 50,000 654.0p 3/3/12

b 3/3/10 125,000 125,000 962.0p 3/3/13

b 3/5/11 0 125,000 125,000 1,149.0p 3/5/14

b** 5/4/11 0 14,260 14,260 0 1,146.0p 5/4/11 5/4/11 1,146.0p

b** 13/10/11 0 6,485 6,485 0 1,162.0p 13/10/11 13/10/11 1,162.0p

Total 560,526 180,425 185,166 26,250 529,535


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PA

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Table 4: Movements in directors’ interests in restricted shares continued






of award

Earliest release

dateDate of release


of release

John Makinson

b* 13/10/06 29,167 29,167 0 767.5p 13/10/09 13/10/11 1,162.0p

b* 30/7/07 20,000 20,000 778.0p 2/3/10

b* 4/3/08 121,875 91,407 30,468 649.5p 4/3/11 5/4/11 1,146.0p

b* 3/3/09 100,000 26,250 73,750 654.0p 3/3/12

b 3/3/09 50,000 50,000 654.0p 3/3/12

b 3/3/10 125,000 125,000 962.0p 3/3/13

b 3/5/11 0 125,000 125,000 1,149.0p 3/5/14

b** 5/4/11 0 14,260 14,260 0 1,146.0p 5/4/11 5/4/11 1,146.0p

b** 13/10/11 0 7,263 7,263 0 1,168.9p 13/10/11 13/10/11 1,162.0p

Total 446,042 146,523 142,097 26,250 424,218

Total 3,781,042 1,250,865 1,234,474 188,125 3,609,308

Note 1 The number of shares shown represents the maximum number of shares that may vest, subject to any performance conditions being met.

Note 2 No variations to the terms and conditions of plan interests were made during the year.

Note 3 The performance and other conditions that apply to outstanding awards under the annual bonus share matching plan and the long-term incentive plan and that have yet to be met were set out in the reports on directors’ remuneration for the years in which they were granted.

Note 4 In the case of the long-term incentive plan awards made on 3 March 2009, we detail separately the part of the award based on ROIC and EPS growth (two-thirds of total award) and that part based on relative TSR (one-third of total award), because vesting of that part of the awards based on TSR was not known at the date of the 2011 report.



Table 5: Movements in directors’ interests in share options

Shares under option are designated as: a worldwide save for shares; b long-term incentive; and * where options

are exercisable.

Date of grant 1 Jan 11 Granted Exercised Lapsed 31 Dec 11Option

price

Earliest exercise

dateExpiry

dateDate of

exercisePrice on exercise

Gain on exercise

Marjorie

Scardino

a 8/5/09 1,672 1,672 547.2p 1/8/12 1/2/13

b* 9/5/01 41,550 41,550 0 1,421.0p 9/5/02 9/5/11

b* 9/5/01 41,550 41,550 0 1,421.0p 9/5/03 9/5/11

b* 9/5/01 41,550 41,550 0 1,421.0p 9/5/04 9/5/11

b* 9/5/01 41,550 41,550 0 1,421.0p 9/5/05 9/5/11

Total 167,872 0 0 166,200 1,672 £0

Will Ethridge

b* 9/5/01 11,010 11,010 0 $21.00 9/5/02 9/5/11

b* 9/5/01 11,010 11,010 0 $21.00 9/5/03 9/5/11

b* 9/5/01 11,010 11,010 0 $21.00 9/5/04 9/5/11

b* 9/5/01 11,010 11,010 0 $21.00 9/5/05 9/5/11

Total 44,040 0 0 44,040 0 $0

Rona

Fairhead

a 4/5/07 2,371 2,371 690.4p 1/8/12 1/2/13

b* 1/11/01 20,000 20,000 0 822.0p 1/11/02 1/11/11 19/9/11 1,136.0p £62,800

b* 1/11/01 20,000 20,000 0 822.0p 1/11/03 1/11/11 19/9/11 1,136.0p £62,800

b* 1/11/01 20,000 20.000 0 822.0p 1/11/04 1/11/11 19/9/11 1,136.0p £62,800

Total 62,371 0 60,000 0 2,371 £188,400


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AN

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NT

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Table 5: Movements in directors’ interests in share options continued

Shares under option are designated as: a worldwide save for shares; b long-term incentive; and * where options

are exercisable.

Date of grant 1 Jan 10 Granted Exercised Lapsed 31 Dec 10Option

price

Earliest exercise

dateExpiry

dateDate of

exercise Price on exercise

Gain on exercise

Robin

Freestone

a 9/5/08 1,757 1,757 0 0 534.8p 1/8/11 1/2/12 1/8/11 1,180.0p £11,336

Total 1,757 0 1,757 0 0 £11,336

John Makinson

b* 9/5/01 19,785 19,785 0 1,421.0p 9/5/02 9/5/11

b* 9/5/01 19,785 19,785 0 1,421.0p 9/5/03 9/5/11

b* 9/5/01 19,785 19,785 0 1,421.0p 9/5/04 9/5/11

b* 9/5/01 19,785 19,785 0 1,421.0p 9/5/05 9/5/11

Total 79,140 0 0 79,140 0 £0

Total 355,180 0 61,757 289,380 4,043 £199,736

Note 1 No variations to the terms and conditions of share options were made during the year.

Note 2 Each plan is described below.

a Worldwide save for shares – The acquisition of shares under the worldwide save for shares plan is not subject to the satisfaction of a performance target.

Marjorie Scardino, Rona Fairhead and Robin Freestone hold options under this plan. Details of these holdings are itemised as a.

b Long-term incentive – All options that remain outstanding are exercisable and lapse if they remain unexercised at the tenth anniversary of the date of grant.

Details of the option grants under this plan for Marjorie Scardino, Will Ethridge, Rona Fairhead and John Makinson are itemised as b.

Note 3 Marjorie Scardino contributes US$1,000 per month (the maximum allowed) to the US employee stock purchase plan. The terms of this plan allow participants to make monthly contributions for six month periods and to acquire shares twice annually at the end of these periods at a price that is the lower of the market price at the beginning or the end of each period, both less 15%.

Note 4 The market price on 31 December 2011 was 1,210p per share and the range during the year was 983p to 1,222p.

Approved by the board and signed on its behalf by

David Arculus Director

7 March 2012

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